Oracle Corp (ORCL, Financial) has seen a daily gain of 1.91% and a 3-month gain of 21.57%. With an Earnings Per Share (EPS) (EPS) of 3.06, the question arises: Is Oracle's stock modestly overvalued? This article aims to provide a comprehensive valuation analysis to answer this question. Read on to discover more about Oracle's financial health and the intrinsic value of its stock.
About Oracle Corp
Founded in 1977, Oracle Corp (ORCL, Financial) has pioneered the first commercial SQL-based relational database management system. The company provides database technology and enterprise resource planning (ERP) software to enterprises worldwide. Today, Oracle boasts 430,000 customers in 175 countries, backed by its 136,000 employees. With its stock currently priced at $117.78 per share, we compare this with the GF Value, an estimation of the fair value, to provide an in-depth analysis of the company's value.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally trade at.
If the stock price is significantly above the GF Value Line, it indicates that the stock is overvalued and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, it suggests that the stock is undervalued and its future return is likely to be higher.
According to GuruFocus' valuation method, Oracle (ORCL, Financial) appears to be modestly overvalued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. With its current price of $117.78 per share, Oracle stock appears to be modestly overvalued.
Considering Oracle's relative overvaluation, the long-term return of its stock is likely to be lower than its business growth.
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Oracle's Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it is crucial to research and review a company's financial strength before purchasing its shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Oracle has a cash-to-debt ratio of 0.11, ranking worse than 92.06% of companies in the Software industry. The overall financial strength of Oracle is 4 out of 10, indicating that its financial strength is poor.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Oracle has been profitable 10 years over the past decade. Over the past twelve months, the company had a revenue of $50 billion and an EPS of $3.06. Its operating margin is 27.37%, which ranks better than 94.25% of companies in the Software industry. Overall, the profitability of Oracle is ranked 9 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. Oracle's 3-year average revenue growth rate is better than 65.53% of companies in the Software industry. However, Oracle's 3-year average EBITDA growth rate is 9.4%, which ranks worse than 50.28% of companies in the Software industry, indicating poor growth.
Another way to evaluate a company's profitability is by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. In the past 12 months, Oracle's ROIC was 9.88 while its WACC came in at 9.75.
Conclusion
In conclusion, the stock of Oracle (ORCL, Financial) appears to be modestly overvalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks worse than 50.28% of companies in the Software industry. To learn more about Oracle stock, you can check out its 30-Year Financials here.
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