Can Oracle Coast Higher?

With shares of Oracle (NASDAQ:ORCL) trading around $33, 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 develops, manufactures, markets, hosts and supports 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. Through its three businesses, Oracle provides the products and services that are essential for seamless business growth across various sectors.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

T = Technicals on the Stock Chart are Mixed

Oracle has seen a consistent pattern of higher highs and higher lows for about a decade now. The stock has yet to reach price levels achieved during the technology boom but seems to be have those levels as an achievable target. 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 below around its 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

19.46%

3%

5%

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

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish 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 growth on mixed revenue growth figures, over the last four quarters. From these figures, the markets were disappointed with the latest announcement but have generally been pleased with Oracle’s previous three earnings announcements.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

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

-2.59%

8.38%

4.25%

-5.24%

5.85%

Oracle has underperformed most of its peers and sector, year-to-date.

Conclusion

Oracle operates in a niche that provides products and services essential to the daily operations and growth of most businesses across the globe. The company’s earnings have been steadily growing while revenue has been mixed. This, in turn, has led to a stagnant stock that has trailed most of its peers and sector year-to-date performance. WAIT AND SEE what Oracle does in coming quarters.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More from The Cheat Sheet