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 – salesforce.com (CRM), SAP (SAP), Oracle (ORCL), IBM (IBM), and Microsoft (MSFT) – accounted for 48% of total CRM software revenue. And back in June, salesforce.com and Oracle entered a nine-year strategic partnership that will deliver hybrid cloud applications to customers. As part of the arrangement, Oracle will provide salesforce.com with its Exadata hardware and other technology to power the latter’s cloud computing applications, infrastructure, and platform; salesforce.com will also integrate with Oracle’s Fusion Human Capital Management and Financial Cloud.
Inspired by the recent moves of SugarCRM, salesforce.com 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.
Click on the image below to see returns over time. Sourced from Zacks Investment Research.Your browser does not support iframes.
Dig Deeper: Compare analyst ratings to annual returns for stocks mentioned.Do you think these companies will increase their above average ROA and ROIs? Use this list as a starting point for your own analysis. 1. F5 Networks, Inc. ( FFIV): Provides technology that optimizes the delivery of network-based applications, and the security, performance, and availability of servers, data storage devices, and other network resources in the Americas, EMEA, Japan, and the Asia Pacific. Market cap at $6.82B, most recent closing price at $85.38. TTM Return on Assets at 13.17% vs. an industry average at 7.99%. TTM Return on Investments at 19.09% vs. an industry average at 10.01%.
2. Intuit Inc. ( INTU): Provides business and financial management solutions for small and medium-sized businesses, consumers, accounting professionals, and financial institutions in the United States, Canada, India, and the United Kingdom. Market cap at $18.75B, most recent closing price at $63.02. TTM Return on Assets at 16.14% vs. an industry average at 9.57%. TTM Return on Investments at 23.35% vs. an industry average at 12.93%.
3. Microsoft Corporation ( MSFT): Develops, licenses, and supports a range of software products and services for various computing devices worldwide. Market cap at $263.87B, most recent closing price at $31.62. TTM Return on Assets at 16.59% vs. an industry average at 9.57%. TTM Return on Investments at 24.18% vs. an industry average at 12.93%.
( List compiled by Mary-Lynn Cesar, Kapitall contributor. Accounting data sourced from Google Finance. All other data sourced from Finviz.)