It's becoming a habit: cloud software giant Salesforce.com (CRM) - Get Report  once again reported revenue and EPS -- both GAAP and non-GAAP -- above guidance. Despite some currency headwinds, fiscal Q2 2020 revenue jumped 22% year-over-year and reached $4 billion while the high end of the guidance forecasted $3.95 billion.

The EPS beat is even more impressive as GAAP EPS reached $0.11 against an expected negative GAAP EPS of $0.07 to $0.08. Management also raised its fiscal Q3 and full-year guidance. With such strong results, the 5.5% increase in Friday morning trading isn't surprising.

But acquisitions and one-time items disturb year-over-year comparisons. And, given the demanding valuation, some elements are important to consider before investing in the company with a margin of safety.

Results not as Spectacular as They Look

The reported 22% year-over-year revenue growth looks impressive. Salesforce's Customer 360 platform certainly contributed to this success, and the solid growth was consistent across all regions and the company gained large customers like FedEx (FDX) - Get Report , Union Pacific (UNP) - Get Report  and AirBnB. But these results included the revenue from the salesforce.org acquisition. Without this transaction, the actual organic revenue growth of 20% is lower than the reported results. Considering the large revenue base, though, the revenue growth is still robust.

The same principle applies to the reported fiscal Q2 GAAP EPS, with the impressive $0.18 beat being due to two exceptional items. Mark-to-market adjustments and lower-than-expected salesforce.org settlement benefited GAAP EPS by $0.10 and $0.08, respectively. Without these items, the GAAP EPS would have been in line with guidance.

The updated guidance also deserves more attention. The acceleration of the expected fiscal 2020 revenue growth in the range of 26% to 27% is remarkable. But this new forecast obviously includes the contribution from the recent acquisitions of Tableau (DATA) - Get Report , Salesforce.org, and ClickSoftware.

Without these transactions, management expects top-line revenue growth in the range of 20% to 21%. Given the currency headwind, the guidance still represents solid growth. But the update actually corresponds to lower organic revenue expectations. During the previous quarter, management had forecasted a full-year revenue growth in the range of 21% to 22%.

Operating Margin Needs to Improve

Even if the top-line results and the guidance aren't as spectacular as the headlines suggest, they remain strong.

But despite the high revenue growth, operating leverage didn't materialize during fiscal Q2. Sales and marketing was still the most important expense, by far, at 45% of revenue. Income from operations still represented only 6% of revenue. Higher sales and marketing partly offset the higher gross margin compared to last year.

The acquisitions also impact the margins. Management now expects fiscal 2020 non-GAAP operating margin to decrease by approximately 50 basis points year-over-year.
But without the acquisitions, the operating leverage is expected to eventually take place. During fiscal 2020, non-GAAP operating margin is forecasted to improve by more than 150 basis points.

Besides the organic margin improvements, the integration of the acquisitions and the corresponding operating leverage are important elements to watch over the next several quarters.

No Margin of Safety

Taking into account the midpoint of the fiscal 2020 revenue guidance and a share price of $157.61, the market values the company at an EV/Sales ratio of about 7.3x. Strong revenue growth justifies a higher valuation. But Salesforce's growth isn't as spectacular as it looks like due to the acquisitions. And the company must still show it can deliver operating leverage and improve its bottom line.

Also, there are some indications management doesn't think the market undervalues the company. For instance, management used the stock as currency to acquire Tableau in an all-stock deal. And Marc Benioff, the chairman and co-CEO, has been selling a significant number of shares over the last several quarters. According to the company's proxies, he sold more than 1.24 million shares between March 2018 and March 2019, and his ownership decreased from 5.1% to 4.7% of the common shares outstanding.

Thus, despite Salesforce's strong results, I prefer to stay on the sidelines. The high valuation just doesn't provide the margin of safety I require. And the company must show it can improve its profit margin while still growing.

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The author doesn't own any of the stocks mentioned in this story.