Is Oracle Poised to Head Higher?

With shares of Oracle (NASDAQ:ORCL) trading around $36, 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.

Oracle investors partied a day after the database giant released its fiscal second quarter earnings showing big gains for cloud services and some high-end hardware. Shares of Larry Ellison’s baby jumped 6 percent, surpassing not just the 52-week high from back to March but the May, 2011, post-Internet bubble high as well. On the surface, Oracle’s overall results were nothing to get so excited about, with revenue up 2 percent and net income declining 1 percent. The results just slightly exceeded what analysts expected.

T = Technicals on the Stock Chart Are Strong

Oracle stock has quietly been trending higher in recent quarters. The stock is currently trading near all time highs and looks set to continue this path. 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 above its rising key averages, which signal neutral to bullish 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

20.20%

0%

0%

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

Put IV Skew

Call IV Skew

January Options

Flat

Average

February 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

5.66%

11.32%

16.49%

6.12%

Revenue Growth (Y-O-Y)

1.99%

2.44%

0.28%

0.90%

Earnings Reaction

5.78%

0.05%

-2.58%

-9.67%

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), IBM (NYSE:IBM), and sector?

Oracle

Microsoft

SAP

IBM

Sector

Year-to-Date Return

9.78%

37.85%

4.79%

-5.25%

12.79%

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. The company investors partied a day after the database giant released its fiscal second quarter earnings showing big gains for cloud services and some high-end hardware. The stock has been quietly trending higher and is currently 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.

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