Your Investment Path to the Cloud

NEW YORK ( TheStreet) -- One of the key technologies that has helped businesses of all sizes thrive and stay organized is enterprise software services (SaaS). The current SaaS cloud computing leader reports earnings after the markets close on Thursday, and chances are it won't disappoint analyst or investors.

Salesforce.com ( CRM) knows how profitable the SaaS cloud business can be. With its cloud businesses creating gross margins above 80%, CRM has set the pace for its competitors.

This is why bigger tech giants including Microsoft ( MSFT) are jumping on the cloud business hand-over-fist to drive revenue growth. The demand is so big that there's more than enough business for CRM and MSFT, which has already created gross margins from its cloud enterprises of around 70%.

It was MSFT's cloud business that prompted UBS' Brent Thill on Tuesday to reiterate a buy rating on MSFT and raise the price target from $34 to $40 a share. Thill made the following observations: "On its recent fiscal third-quarter earnings call MSFT finally broke out some surprising financials that Office 365 is on a $1 billion per year run rate and on April 29 MSFT disclosed its Azure business including associated software provided to partners to create related Windows cloud services had surpassed $1B as well."

Translation: MSFT's cloud services added to its higher stock valuation target!

CRM has a big jump on MSFT, which has enabled it to secure the business of more than 100,000 different customers globally. As its delightfully educational Web site states , "Our social and mobile cloud technologies -- including our flagship sales and CRM applications -- help companies connect with customers, partners, and employees in entirely new ways."

The Salesforce.com stock symbol "CRM" and the CRM applications referred to above is all about Customer Relationship Management. In fact CRM claims to have the #1 CRM sales app, which clients can test-drive and "kick the tires" without obligation.

CRM claims its sales app helps improve sales productivity, boost win rates and increase revenue. "With Salesforce.com Sales Cloud you get all the CRM capabilities you need to connect with customers and close bigger deals faster, anytime, anywhere" the company's Web site promises. That's a big claim!

From an investor's perspective, CRM has knocked the ball out of the park for years now. Look at the five-year chart to see what I'm referring to. Quarterly revenue growth has helped fuel the stock's amazing ascent.

CRM Chart CRM data by YCharts

Analysts' consensus average estimate on EPS in the last quarter is around an 11% to 12% increase. The consensus estimate on sales growth and revenue anticipates an almost 27% quarterly improvement. The same group of analysts is predicting a 27% increase in sales growth and revenue for the current year as well.

Insiders and 5% owners control about 8% of the outstanding float of shares. In fact, as of the end of 2012 CEO Marc Benioff owned a staggering 10,212,500 shares worth almost $474 million. The top institutional holder, Sands Capital Management, owns more than $8 billion worth of CRM stock.

What about the fact that CRM shares split 4-for-1 back when CRM traded at around $172? At today's price the pre-split value would be over $185. The reason for the split given by the CEO at the time was to make the shares more liquid, more affordable and less difficult to trade.

As Jim Cramer commented on March 22 about the split decision; "So what's changed? I think Salesforce.com's $170 stock is simply too treacherous to own, not because of how the company's doing, which is fabulously, but because of how poorly the security trades. It is too thin and too unwieldy.

"Plus, it is endlessly footballed around by the hedge-fund community. Salesforce.com is a target -- one that is so easily knocked down by shorts, so easily raided and so easily trashed that perhaps only a 4-for-1 may be able to stem the attacks."

Put another way, the split has helped keep the shares from being a target of the short-selling community. It becomes a more affordable stock at $46.33 than at $185.32 and thus less scary to own. In addition, it's easier doing the major ratio calculations like its PE, P/S and PEG.

In Cramer's inimitable style he describes more benefits of the stock split, "No one wants to pay up $12 for Salesforce.com the day after it reports. You feel like a chump immediately. It is way too scary. Nor do you want to be in a stock in which you could lose 12 points in a blink of an eye."

Then he points out, "Now you might say that, if you split it 4-for-1 and the company reports a good number, the buyers will still have to pay up three points. You know what? You never feel like a chump paying up three. That means nothing. If you know that it might fall three points , that's a level of pain that can be taken."

CRM's earnings conference call is scheduled for Thursday afternoon. We'll learn why software analysts like Keith Weiss at Morgan Stanley on Monday called Salesforce.com his top company in the cloud (SaaS) space.

Weiss wrote, "The relative out-performance of applications, and in particular SaaS-based enterprise applications, bolsters our confidence in top pick CRM. One of the best secular stories in software in our view, CRM has more direct participation in secular demand for mobile, social, marketing and cloud than any company we follow." He thnks CRM should be able to maintain 25%-plus, year over year normalized billings growth in the near term and remains a buyer ahead of the earnings report.

Other analysts besides me also think it's a buy ahead of the quarterly earnings confessions. If the company disappoints or corrects after the announcements, then consider buying a second helping.

Remember, CRM is trading at a high multiple to forward earnings, and if that bothers you then you may want to wait until the guidance is given and the numbers going forward are revealed before being a buyer. Shares are priced just under the 52-week high of $47.58 reached Monday.

At the time of publication the author was long MSFT.

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