Oracle Corp (ORCL, Financial) has recently experienced a notable daily loss of -12.44% and a three-month decline of -7.49%, leaving investors questioning the stock's current valuation. With an Earnings Per Share (EPS) of 3.62, the focus shifts to whether Oracle (ORCL) is fairly valued. The following analysis delves into Oracle's valuation, offering investors a clearer picture of its market position.
Company Introduction
Oracle provides cutting-edge database technology and enterprise resource planning (ERP) software globally. Since its inception in 1977, it has been a trailblazer in SQL-based relational database management systems. Today, Oracle boasts 430,000 customers across 175 countries, supported by an impressive workforce of 136,000 employees. With a current stock price of $100.81 and a GF Value of $102.69, we are prompted to examine Oracle's valuation more closely, juxtaposing its market cap of $276.20 billion against its intrinsic value.
Summarize GF Value
The GF Value is a unique metric, reflecting the true intrinsic value of a stock by considering historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. Oracle (ORCL, Financial) currently appears fairly valued according to this measure. The GF Value suggests that the stock's fair value is influenced by historical multiples, internal adjustments from past business growth, and future performance projections. With Oracle's stock price hovering near the GF Value Line, it indicates that the stock may be priced just right, suggesting that its future return may align with the company's growth rate.
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Financial Strength
Investors must scrutinize a company's financial strength to avoid potential capital loss. Oracle's cash-to-debt ratio of 0.14 is concerning, ranking lower than 88.81% of its peers in the Software industry. This ratio, alongside Oracle's financial strength ranking of 4 out of 10, suggests a less robust balance sheet that investors should consider in their analysis.
Profitability and Growth
Investing in profitable companies, especially those with a history of consistent profitability, is less risky. Oracle stands out with high profit margins and has been profitable for the last decade. The company's impressive operating margin of 26.94% outperforms 94.11% of competitors in the Software industry, earning it a strong profitability rank of 9 out of 10. In terms of growth, Oracle's average annual revenue growth is 15%, surpassing 65.01% of its industry peers. However, its 3-year average EBITDA growth rate is a modest 9.4%, which could be a point of concern for growth-focused investors.
ROIC vs. WACC
Evaluating a company's profitability involves comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Oracle's ROIC over the past 12 months is 9.51, which unfortunately falls short of its WACC of 10.86. This discrepancy suggests that Oracle may not be generating sufficient returns relative to the capital costs, which could impact shareholder value creation.
Conclusion
In conclusion, Oracle Corp (ORCL, Financial) seems to be fairly valued in the current market. While the company's financial condition raises some concerns, its profitability remains robust. However, Oracle's growth and the ROIC vs. WACC comparison present mixed signals that investors should weigh carefully. To gain deeper insights into Oracle's financials, interested parties can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
