Will Oracle Move Higher Post-Earnings?

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 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 reported its fiscal first quarter earnings Wednesday evening, beating expectations for earnings but falling short on revenue. Oracle is battling reduced global demand for IT and smaller companies that provide software online. Software licenses and cloud subscriptions rose 5 percent, which was better than last quarter’s disappointing 1 percent, although Oracle’s hardware sales fell 13 percent year-over-year.

T = Technicals on the Stock Chart Are Strong

Oracle stock has quietly been trending higher in recent quarters. The stock is currently trading near mid-prices for the year and it may need a bit of time before establishing value. 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 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

21.97%

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

October Options

Flat

Average

November 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

11.32%

16.49%

6.12%

23.26%

Revenue Growth (Y-O-Y)

2.44%

0.28%

0.90%

3.43%

Earnings Reaction

-0.38%*

-2.58%

-9.67%

3.68%

Oracle has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have expected a little more from Oracle’s recent earnings announcements.

*As of this writing

P = Weak 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

0.84%

25.50%

-6.53%

1.11%

5.73%

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

Conclusion

Oracle is an international supplier of software and hardware products and services to companies operating in various industries. The company recently reported solid earnings that did not mean investor expectations. The stock has been quietly trending higher and is currently trading near mid-prices for the year. Over the last four quarters, earnings and revenues have been rising, however, investors have expected a little more from the company. Relative to its peers and sector, Oracle has been a weak year-to-date performer. WAIT AND SEE what Oracle does this coming quarter.

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.