Is Oracle a Hot Stock?

With shares of Oracle (NASDAQ:ORCL) trading around $41, is ORCL an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Oracle is a provider of enterprise software and computer hardware products and services. The company’s software, hardware systems, and services businesses develop, manufacture, markets, host, and support database and middleware software, applications software, and hardware systems, with the latter consisting primarily of computer server and storage products. It is organized into three businesses: software, hardware systems, and services. Information technology products and services are seeing increasing demand due to the surge of companies in developing economies.

Micros Systems (NASDAQ:MCRS) revealed on Monday that it has agreed to be bought by Oracle for approximately $5.3 billion. Oracle will be paying $68 for each share of common stock that a Micros Systems shareholder owns. The deal is Oracle’s biggest acquisition in five years, after it bought Sun Microsystems for about $7.4 billion in 2009. The deal follows disappointing fourth-quarter performance for Oracle after the company reported an adjusted earnings per share of 92 cents on Thursday. Analysts were expecting EPS of 95 cents.

T = Technicals on the Stock Chart Are Strong

Oracle stock has been exploding higher over the past several months. The stock is currently trading near all-time highs and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Oracle is trading between its rising key averages, which signals neutral price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Oracle options may help determine if investors are bullish, neutral or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Oracle options

17.84%

0%

0%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Average

Average

August Options

Average

Average

As of Monday, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Oracle’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Oracle look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-0.24%

7.69%

5.66%

11.32%

Revenue Growth (Y-O-Y)

3.38%

3.90%

1.99%

2.44%

Earnings Reaction

-3.97%

-0.74%

5.78%

0.05%

Oracle has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Oracle’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Oracle stock done relative to its peers – Microsoft (NASDAQ:MSFT), SAP (NYSE:SAP), and IBM (NYSE:IBM) — and sector?

Oracle

Microsoft

SAP

IBM

Sector

Year-to-Date Return

7.46%

11.84%

-11%

-3.07%

2.3%

Oracle has been a relative performance leader, year-to-date.

Conclusion

Oracle is an international supplier of software and hardware products and services to companies operating in various industries. Micros Systems said on Monday that it has agreed to be bought by Oracle for approximately $5.3 billion. The stock has been exploding higher over the past several months and is now trading near all-time highs. Over the last four quarters, earnings and revenues have been rising, which has left investors pleased. Relative to its peers and sector, Oracle has been a relative performance leader year-to-date. Look for Oracle to OUTPERFORM.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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