Sell-Side Incompetence and Conflict of Interest

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This is a really funny sell-side report. H/T to my friend Adib of for the find.

From Roth Capital:

We are upgrading our rating from Neutral to Buy and increasing our price target from $125 to $150, reflecting multiples of seven times revenue, 30 times free cash flow (FCF), and 71 times price-to-earnings (P/E) on our fiscal-2014 estimate, which is at a significant premium to the peer multiples of our larger software as a service (SaaS) vendors.


Sales Force (CRM) trades at 233 P/E and 11x Sales currently. And the analyst has a 71 P/E on 2014 estimates!!!


This is insanity. I read sell-side reports all the time at work ( my boss likes them even though we most of the time do not agree with them) and this is the worst I have seen.

Here is more about Roth from their website. The emphasis added below is mine.

ROTH is an investment banking firm dedicated to the small-cap public market. Since its inception in 1984, ROTH has been an innovator in this market. In the 1990’s ROTH participated in underwriting IPOs for small-cap companies. As this market changed, ROTH helped develop the PIPE (private investment in public equity) financing structure. ROTH was one of the first U.S. investment banks to focus on financing small-cap Chinese companies, and established a Representative Office in Shanghai in 2007 and a Hong Kong (Limited) Office in 2010.

ROTH is a privately owned firm that has built a culture of success and innovation. Our approach is driven by our current principals, who are not only the owners of the business but most of whom have been with us for more than 10 years. Our goal has always been to service the needs of small-cap public companies better than anyone else. To this end, ROTH’s exclusive focus is to offer our clients a full spectrum of investment banking services, including capital raising, research coverage, trading and market making, merger and acquisition advisory services, and investor conferences..

Our award-winning research is the foundation of our firm and key to our understanding of the small-cap sector. This research, when combined with our seasoned institutional sales team and our highly visible investor conferences, creates an unparalleled institutional sponsorship platform for growth companies.

Our experience and capabilities in raising capital for public companies are the hallmarks of the Firm. ROTH has raised over $10.9 billion for small-cap public companies and completed over 160 merger, acquisition and advisory assignments. ROTH received top 20 IPO aftermarket performance rankings for six consecutive years from 1994 to 1999. Since 2000, ROTH has been a placement agent for numerous PIPE transactions, raising over $3.3 billion for our clients.

Since 2003, ROTH has completed 78 transactions totaling more than $3.1 billion for US-listed Chinese companies. (as of 12/31/2010)

We are proud of our accomplishments to date, and look forward to continuing to help finance the innovation represented by the small-cap companies.

Proud of our accomplishments? The fact they are upgrading this stock shows that they have a conflict of interest or are complete speculators. I see that Sales Force has presented several times every year at Roth Capital Investor days. Roth has been bullish on the stock for a long time already. There seems to be a cozy relationship between the two, but so far I do not see that Roth has ever helped Roth issue capital, or debt. So nothing so far indicates a clear conflict of interest.

However, either way this demonstrates one of two things. The massive conflicts of interest that an I-Bank has with a firm when they issue both sell-side recommendations and do the financing. It also shows how dumb some of the “smart guys” on Wall Street are.

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