Hot Stock Commentary: Oracle Corporation (ORCL)

Oracle Corporation (ORCL) is our hot stock this week and earns an Attractive rating. Oracle reported quarterly earnings on December 17 and the results pleased many analysts. Overall revenues grew to $9.6 billion on the back of a 45% increase in the ever-important cloud services segment. Cloud bookings grew over 140% and now total 600 ERP Fusion Cloud customers. Oracle’s CEO noted that number is “over five times the customers than cloud competitor Workday (WDAY).”

We’ve previously highlighted the problems with many cloud companies, specifically WDAY, (CRM), and NetSuite (N). The biggest issue with these companies is simply their lack of profits. What makes Oracle different because its diverse and profitable segments allow it to focus on growing its cloud services while still making a profit.

Over the past five years, Oracle has grown its after tax profit (NOPAT) by 13% compounded annually. In addition to profits, Oracle maintains an impressive return on invested capital (ROIC) of 31%, much higher than that of the cloud competitors mentioned above. At its current price of ~$46/share, Oracle has a price to economic book value ratio (PEBV) of 1.2. This ratio implies that the market expects Oracle to only grow NOPAT by 20% from current levels. After growing NOPAT by double digits annualized for the last five years, it should be no time at all before Oracle has surpassed these low expectations. Factor in the continued growth of cloud services, and you see why Oracle is our hot stock of the week.

Kyle Guske II contributed to this report.

Disclosure: David Trainer owns ORCL. David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector, or theme.

Photo Credit: Not Quite a Photographr (Flickr)

1 Comment

  • Stefano Falconi

    December 24, 2014

    This stock is at 46 and not at 41

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