Salesforce.com's stock split a smart move

Shares of the company have become dangerously high-priced, so this move will help tremendously.

By Jim Cramer Mar 22, 2013 9:06AM

thestreet logo Stock market report CorbisMarket purists, you will hate this piece. So skip it. But Salesforce.com (CRM) CEO Marc Benioff's decision to issue a 4-for-1 stock split, announced Thursday night, is an inspired and correct decision -- one that I believe will immeasurably help this $172 stock. That's right: I think it will matter, and maybe much more than most realize.


You might now say, "Come on, Cramer, you know that a stock split is a totally cosmetic gesture, and an empty one at that. It means nothing, creates no value and doesn't matter." But before you do, I want to say I know all of that. I have proselytized exactly that for years. How many times have I handled questions from readers and viewers about the value of stock splits simply by splitting a pencil in half, showing that this doesn't create any value at all? It's chimerical.


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 simply, I think they will go elsewhere for their prey if this stock no longer trades like at ten-pin in a Professional Bowlers Association tour. It will cease to be a frightening stock to own.


That's right, holding the stock of Salesforce.com can be downright frightening. I dread its reporting days, because you know the stock's going to be up $12 if it is a good number, or down $12 on a bad one -- at a minimum. That's just not a tenable result.


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.


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 3 points. You know what? You never feel like a chump paying up 3. That means nothing. If you know that it might fall 3, that's a level of pain that can be taken.

Yes, again, I know that this is alchemy. Fifty shares of Salesforce.com in the $170s equals having 200 at $44. But they aren't equal if the stock doesn't work efficiently, if it moves too erratically on every bit of news. An erratic stock isn't something you want in your portfolio, even if it is attached to a fabulous, one-of-a-kind company.


I know that a split doesn't make Salesforce.com "cheaper." It's a high-multiple stock, and it deserves that multiple. But it doesn't deserve to swing as it does, not with this kind of earnings consistency.


I think this whole idea of letting your stock go up without splitting it, trying to imitate Warren Buffett's Berkshire Hathaway (BRK.A) -- that is usually the subtext -- has become a very bad call for most companies. Buffett's stock moved up during a time when hedge funds and short-sellers didn't rule the earth. He wanted shareholders for life, and he thought splitting the stock would cater to the "wrong kind" of shareholders, to the "hot" shareholders.


That's all well and good, but right now these high-dollar stocks are like high-wire acts for individual investors. They are needlessly dangerous when the companies themselves are just excellent growth stocks.


So laugh at Benioff, or at me. Joke that it means nothing and that the split is a sign of froth. As someone who has watched this company and this stock for a very long time, I think it will gain retail adherents and shake out hedge funds, the real goal of Buffett, in a different time. Yes, the liquidity will be a godsend -- and a 4-for-1, in one fell swoop, will provide it. No, it's not a reason to buy shares in the company. Yes, it is a reason that investors should no longer fear an unpredictable stock of what has become a very predictable company.

Cramer

 


Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions in stocks mentioned.

 

 

Test-drive all the wealth-building ideas and picks from Jim Cramer and TheStreet.com's Wall Street pros.  FREE this weekend only.  

 

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60Comments
Mar 22, 2013 10:04AM
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It's sad when I read the comments on the article far more closely then the article itself.  Not a knock on Cramer, he is an entertainer and I take his recommendations with a grain of salt (oddly enough I follow the advice of the disclaimer that appears on the bottom of the screen on his show).

Possible Cyprus plan, markets can continue their rise for a few more months.

Starting to buy into foreign bonds as I fear the next big correction in about 6 months.  Will slowly add to this over the coming months.  South America, Mexico and some Pacific/south Asia countries have a solid balance of risk to reward (I think) and I'm going in that direction.

 

Oh and First!!!!!

Mar 22, 2013 10:44AM
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We need a lot of companies to split their stock.
Mar 22, 2013 12:36PM
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Ha Ha Ha

dlh2448 your are correct sir, I clicked on Nevada Lukes profile and yep, he is Sargent Frank and Limo Pat!!!

Hey Limo Sargent Luke or whatever WHY THE HELL DO YOU WASTE YOUR LIFE DOING THIS CRAP YOU F'ING CRACK HEAD.

Then again why did I waste my time posting on this......................................

I need a drink RE-TOG pass the bottle this way.

Mar 22, 2013 12:20PM
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I picked my share of losers when I was younger because I didn't understand P/E. Today even that seems to be out the window.  The Fed has thrown so much money around price discovery is a distant memory.
Mar 22, 2013 1:10PM
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I'm going to step out and make a prediction so you can all shoot at me.

 

In the next presidential election one or more of the front running democrats will be proposing repeal of Obamacare.

Mar 22, 2013 12:25PM
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You are right about the yellow....even the slot machines  are making bigger cards and catering to the seniors. Boomers rule.....
Mar 22, 2013 12:30PM
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Well hello Mr. Split Personality......... Limo Pat.. Sgt Frank and now Nevada Luke.....

 

 

Mar 22, 2013 1:32PM
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Using Jello shots, with Irish Whiskey is a good idea....Who'd ever thunk it...??

 

My one kid/g-kids put out shoe boxes and other contraptions to catch Leperchauns on St.Patrick's eve.

 

They bait them with shiny or bright colored objects, fake jewels and baubles, etc.

Leperchauns are suckers for that kind of stuff...

If they get caught, the ONLY WAY they can get out is by leaving some candy in a bowl, or on floor near a trap, buying their way out jail...

If the G-Kids get up in the morning and find candy in the traps....They know the Leperchauns have been there.....We just feed the ones we catch to the Cats....We have never caught a Tooth Fairy..

Mar 22, 2013 10:59AM
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Yes, we are up over 80 points but sadly we don't have a warm feeling down here...We have been up earlier this week and the gains disappeared...Plenty of manipulators trying to take control...Try to be a bit cautious...We know it is still early...Beware...More later.
Mar 22, 2013 11:14AM
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"He wanted shareholders for life, and he thought splitting the stock would cater to the "wrong kind" of shareholders, to the "hot" shareholders."


Not only is cramer a seer he can now read the mind of Warren Buffett !!   Why am I conjuring up mental pictures of Johny Carson in his turban !!


Mar 22, 2013 1:04PM
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They say, I have heard...."Once you go Canuck...You won't go Back."...yuk,yuk,yuk.

 

I thought it was funny, anyway...

Mar 22, 2013 1:00PM
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I remember the JEEP 1865 handle.....Didn't remember the connection...?

 

Hell I'm lucky if I can remember what I had for Dinner/Supper 5-6 days ago...?

Actually that one is easy....It was Corned Beef and Cabbage dinner...

 

We set out "Leperchaun Traps" the night before..CAUGHT 3 of the Little Bastards..Cats ate them.

Mar 22, 2013 12:15PM
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If we turn around and go red today I see us cementing a new move and it isn't to the upside.  This market is leaking oil.  I believe this EU Cyprus stuff  has the potential for some serious repercussions and the possibility of trumping the Fed influence.   Like a disaster for the New World Order.  It wouldn't bother me one bit to see these folks and their grandiose ideas imploding on each other. They could take a lot of innocent folks with them though and that wouldn't be fun at all.     JMHO
Mar 22, 2013 12:10PM
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 I get a warm fuzzy, somedays watching the Markets...

 

My best warm feelings come when I'm in a swimming pool or bathtub. 

Mar 22, 2013 5:56PM
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Yes it is TGIF, thanks for the entertainment, and Market info today...Have a nice weekend..

 

I have $7 dollars in Table chips, that I carried home by mistake...Didn't check all pockets

Think a Casino is calling? Want their chips back...Hit it..Or split then 8s.??

Ciao.

Mar 22, 2013 4:17PM
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We can go a Hundred miles in any direction....And pass buy several Casinos.(or a couple maybe.)

 

You can do that, in about any State now..

 

Some are Indian owned..?? And others are owned by Controlled Gaming..??

Could be both...

Mar 22, 2013 4:11PM
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One Canadian....That I'm fond of..

There are many Canadians that Act in Movies and American TV, several Comedians..

 

One that cranks me...Is Robin from " How I met your Mother." TV Sitcom.

 

She is about as Good as Soft Ice Cream, and better then dry toilet paper.

She's real, and she lets you know it...

Mar 22, 2013 3:02PM
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A long hour to go...We've been hanging in there...Not there yet though, still plenty of movement down here...Do not take anything for granted, and its friday to boot....Would be nice to break even at least for the week...More after the close.
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