Is Oracle’s Stock a Buy Now?

With shares of Oracle Inc. (NASDAQ:ORCL) trading at around $35.48, 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:

C = Catalyst for the Stock’s Movement

If we get right to the point, then all you need to do is look at the max chart for Oracle. There is a saying on Wall Street that the winners keep winning. Oracle is a prime example. This often stems from great leadership, which Oracle most certainly possesses.

Oracle has shown consistent profits and revenue growth for many years, margins are high, strategic acquisitions have been made and will continue to be made, cash flow is good, the balance sheet is strong, and the stock’s performance has been impressive. So…what’s not to like? Why has short interest increased over the past few weeks?

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Increasing short interest is likely due to the possibility for a dramatic slowdown in earnings going forward. However, Oracle is wise enough to know how to plan for a rainy day. It’s too early to tell if the Taleo, RightNow Technologies, and Eloqua (NASDAQ:ELOQ) will pay off, but keep in mind that even if they don’t, Oracle can afford to keep firing away. Another way for Oracle to offset any bad news is to increase dividend payments, or to announce a buyback. Another important note is that Oracle survived the financial crisis of 2008/2009 better than almost any other tech company on the planet.

The news is good so far, but what about the numbers?

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Oracle is normal, and the balance sheet is strong.  

Debt-To-Equity

Cash

Long-Term Debt

ORCL

0.46

$33.70 Billion

$18.51 Billion

MSFT

0.20

$68.31 Billion

$14.19 Billion

SAP

0.30

$4.91 Billion

$2.66 Billion

 

T = Technicals on the Stock Chart Are Strong  

Oracle has underperformed SAP AG (NYSE:SAP) over the past three years, but it has outperformed Microsoft Corporation (NASDAQ:MSFT).

1 Month

Year-To-Date

1 Year

3 Year

ORCL

8.36%

7.38%

27.37%

59.40%

MSFT

5.50%

4.87%

-1.46%

7.11%

SAP

2.33%

1.07%

37.87%

88.71%

 

At $35.48, Oracle is currently trading above all its averages.  

50-Day SMA

33.12

100-Day SMA

32.28

200-Day SMA

30.64

 

E = Earnings Have Been Impressive     

Oracle has consistently increased earnings on an annual basis. The same can be said for revenue. It’s rare to find earnings and revenue increasing consistently in unison.

2008

2009

2010

2011

2012

Revenue ($)in billions

22.43

23.25

26.82

35.62

37.12

Diluted EPS ($)

1.06

1.09

1.21

1.67

1.96

 

When we look at the last quarter on a year-over-year basis, we see an increase in revenue and earnings.

11/2011

2/2012

5/2012

8/2012

11/2012

Revenue ($)in billions

8.79

9.04

10.92

8.18

9.09

Diluted EPS ($)

0.43

0.49

0.68

0.41

0.53

 

T = Trends Might Support the Industry

All the big application software companies are making strategic acquisitions, which is being done in an effort to set up for the future due to questionable demand for current products and services. Oracle has been one of the most aggressive companies when it comes to acquisitions, which is a good sign considering the company’s quality track record when it comes to decision making.

Conclusion

Positives for Oracle include great management and leadership, excellent margins, a healthy balance sheet, strong cash flow, consistent growth, and an attractive valuation with a Trailing P/E of 16.82 and a Forward P/E of 12.13. Shorts are expecting a slowdown in earnings, but there is little doubt that Oracle will be prepared to offset any negative news with positive news. Of course, it’s also possible that earnings will surprise to the upside. Oracle is a win/win situation. Even if the stock gets slammed, take a look at its history and its ability to recover.

Oracle is an OUTPERFORM.

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