Does Oracle Support a Move Higher?

With shares of Oracle (NASDAQ:ORCL) trading around $34, 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. As businesses continue to grow, look for Oracle to offer the support required that will send it to rising profits.

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T = Technicals on the Stock Chart are Mixed

Oracle stock has been steadily moving higher over the last several years. The stock has recently pulled-back from multi-year highs but looks to be preparing for a move higher. 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 slightly above its tangled key averages which signal neutral price action in the near-term.

ORCL

(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

24.37%

96%

95%

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

Put IV Skew

Call IV Skew

June Options

Steep

Average

July Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish 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?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

6.12%

23.26%

13.89%

9.68%

Revenue Growth (Y-O-Y)

-0.90%

3.43%

-2.30%

1.39%

Earnings Reaction

-9.7%

3.68%

0.65%

3.09%

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

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P = Poor Relative Performance Versus Peers and Sector

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

Oracle

IBM

Microsoft

SAP

Sector

Year-to-Date Return

3.15%

8.75%

29.77%

-1.08%

6.87%

Oracle has been a poor relative performer, year-to-date.

Conclusion

Oracle provides essential information technology products and services to a multitude of companies and consumers around the world. The stock has been rising steady, over the last few years, but has seen increased selling pressure in recent times. Over the last four quarters, earnings have been on the rise while revenue has been mixed resulting in pleased investors. Relative to its peers and sector, Oracle has been a poor year-to-date performer. WAIT AND SEE what Oracle does in coming quarters.

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