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3 Cloud Computing Stocks With High ROA And ROI

​Mary-Lynn Cesar, Kapitall: SugarCRM Inc. – an open-source manufacturer of customer relationship management (CRM) software – has raised $40 million in equity from Goldman Sachs to assist with its global expansion. The company has recorded 15 straight quarters of growth, and plans to use the investment to drive research and development as well as sales and marketing, to position itself as a leader in the growing CRM industry. In 2012 the global CRM market generated $18 billion in revenue, and information technology research and advisory firm Gartner forecasts that number will rise by 14.4% to $20.6 billion this year.

While the recent investment will help SugarCRM make headway in the global CRM market, the company still faces stiff competition from more established companies in its field. Last year, according to Gartner, the top 5 CRM providers – (CRM), SAP (SAP), Oracle (ORCL), IBM (IBM), and Microsoft (MSFT) – accounted for 48% of total CRM software revenue. And back in June, and Oracle entered a nine-year strategic partnership that will deliver hybrid cloud applications to customers. As part of the arrangement, Oracle will provide with its Exadata hardware and other technology to power the latter’s cloud computing applications, infrastructure, and platform; will also integrate with Oracle’s Fusion Human Capital Management and Financial Cloud.

Investing ideas

Inspired by the recent moves of SugarCRM, and Oracle, we decided to take a closer look at the financial performance of stocks within the CRM software market. Specifically, we focused on the efficiency of investments undertaken by these businesses. We began with a universe of cloud computing stocks derived from the First Trust ISE Cloud Computing Index Fund (SKYY). Next, we screened for stocks with a return on assets (ROA) higher than the industry average. ROA is a performance metric that assesses a company's ability to use its assets to generate earnings. The formula for ROA is:

ROA = Net income / Total Assets

Assets refers to a company’s debt and equity, both of which can be used to finance its operations. When a company has a high ROA, it means that the firm uses its assets efficiently to make investments that earn significant amounts of money.

For the last screen, we looked for stocks with a return on investment (ROI) higher than the industry average. ROI measures a company’s profitability by dividing the benefit of an investment by its cost. The formula for calculating ROI is:

ROI = (Gain from Investment – Cost of Investment) / Cost of Investment

In the formula, gain from investment refers to the money earned from selling the investment. ROI speaks to the profitability of an investment, so a company with a high ROI is efficient in generating gains from its investments.

We were left with three stocks on our list.

1 of 3

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