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Why NetSuite No Longer Makes Sense For Investors

Absent significant returns on its assets or investor equity there is little justification for investors to continue placing such a high bet. This is an area in which NetSuite has failed to produce consistently for investors over the past three years. Remarkably, these same investors appear to not care.

What's more, the fact that it has failed to earn a profit over the past five years, coupled with its string of recent losses, should make you doubt the competence and execution of the company's management.

This makes it even tougher to consider any bullish argument when NetSuite is up against the brilliance of management teams leading Oracle, SAP (SAP) and IBM. Making matters worse is NetSuite will start to face increased competition from Microsoft (MSFT), which has an underrated cloud product of its own called Dynamics CRM. Investors would be wise to appreciate that Microsoft's strong enterprise footprint can easily eat away at NetSuite's mid-sized business market.

Bottom Line

It is hard to not give the benefit of the doubt to tech companies in fast-growing industries. However, it's harder to look at certain businesses and overlook the many holes that exist -- particularly such glaring ones as having little to no as margin leverage and profitability.

NetSuite's stock is priced for perfection. Based on its history, I just don't think it has the management structure in place to execute perfectly. In a year or two, I would love to be proven wrong. Today, however, given its current fundamentals, owning the stock doesn't make sense.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
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