Ripe For A Fall?

When it comes to P/E, Green Mountain Coffee Roasters and Salesforce.com are in nosebleed territory. Coincidentally, both companies have $15 billion market caps. Green Mountain Coffee Roasters makes the Keurig single-cup brewing system. Salesforce.com is a provider of enterprise cloud computing applications.

Do they deserve these sky high P/Es? No company can remain at lofty 100+ P/Es forever. In the end, they all must fall to Earth. They must earn those elevated valuations. Investors are willing to "pay up" as long as the companies tell an amazing story in anyway one of the measures: revenue, revenues, cash flow. What are those stories?

Es often demonstrate accelerated revenue growth (ARG). How do the two stack up on year over year revenue growth? Data is courtesy of Morningstar. 2011 is 6 month comparison to analogous period 2010.

Green Mountain Coffee Roasters has ARG. Opposite, Salesforce.com's revenue growth has been decelerating for most of the last decade. Salesforce.com revenue growth has been starting to accelerate, though it is below Green Mountain Coffee Roasters' strong performance. Salesforce.com has a subscription based model -- some of its revenue is deferred over a 2 to 5 year period, hiding some of its sales. Salesforce.com reported $935 million in deferred revenue, an increase of 37% over last year, a rate in keeping with its overall revenue growth. Good, nevertheless not in the same ball park as Green Mountain Coffee Roasters. Chalk one up for Green Mountain Coffee Roasters.

Green Mountain Coffee Roasters has seen strong EPS growth. Salesforce.com has just the in contrast. Salesforce.com has but to translate its revenue into consistent revenues. Green Mountain Coffee Roasters wins this contest.