Salesforce.com revisited. Still an overvalued stock?

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Back in September I reviewed some of the financial measures behind Salesforce.com . See here for details:

Then in October I predicted the stock would hit the twenties from $58 the month before and $36.50 at the time of the post. See here:
So with Salesforce releasing their results for 2008, I thought it would be time to revisit.
Still worth a bottle of beer?
In October I asserted the stock was worth the price of a bottle of beer ($3.55). So what about now? Well I’ve revised my estimate up to, at best, $10 but this is still a lot below its current level of $28. Why the low valuation? Read on.
P/E Ratio
By my calculations, the P/E of Salesforce is running at around 100. This means if you invest $1, it will take, at the current performance levels, 100 years to double your money. Ouch. Short of a big turnaround in profitability, this isn’t going to improve any time soon unless the stock goes cheaper.
Tangible Book Value
To their credit, Salesforce has increase the tangible book value per share. This is a measure of how much you’d get if Salesforce did a fire sale, based on the selling of their assets. The value has gone from $3.55 to $4.88 . Still well below the share price of $28
Revenue Growth
Finally we saw that billion dollar revenue we had been hearing about for so long. Well done Salesforce. However,  with a good economy and few rivals in the SaaS space, Salesforce manages to slow its revenue growth down by 10% each year and 2008 was no exception. The series as per my September post was (2005-2008) 84%, 76%, 60%, 51%. And their latest revenue growth figure? 44%. Nothing changing here. 2010 should give us growth in the 30s at best and I’m thinking maybe in the 20s now that Dynamics CRM is in the space and engaged in a price war and the economy is so poor. 
Margins
As per my September post, Salesforce consistently has single digit pre-tax margins. That is, they make less than 10% profit on sales. The latest result? 6%, the same as the previous year and actually a bit less if we look a few decimal places in. Nothing remarkable here and certainly no big turnaround needed to bring the P/E ratio to sane levels.
Cashflow
Free Cash Flow still in the negatives and a little worse than the previous year. Cash is king. No cash, no business.
Sustainable Growth
This has increased, based on the latest numbers to around 11% but still far short of their actual revenue growth so more borrowing or share issues will be in order.
Conclusions
A lot of the praise for Salesforce regarding their latest results focuses on their revenue growth. Revenue is not everything and their ability to generate profitability and cash is not improving significantly. For every dollar in increased revenue, costs are increasing at the same rate. Don’t expect this stock to leap up any time soon and I think it will still continue its journey towards $20 and perhaps go past.
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