Oracle Corp (ORCL, Financial) has recently shown a daily gain of 3.87% and a three-month gain of 6.16%. With an Earnings Per Share (EPS) of 3.79, investors are keen to understand if the stock is fairly valued. This article delves into Oracle's valuation, exploring whether its current market price reflects its intrinsic value as suggested by the GF Value.
Company Overview
Founded in 1977, Oracle provides pioneering database technology and enterprise resource planning (ERP) software to enterprises globally. As a leader in the software industry, Oracle has established a substantial customer base of 430,000 in 175 countries, supported by approximately 136,000 employees. Currently, Oracle (ORCL, Financial)'s stock is trading at $120.87 per share with a market cap of $332.20 billion. Comparing this to the GF Value of $110.76, it's crucial to assess whether this represents a fair valuation.
Understanding the GF Value
The GF Value is a unique measure, reflecting the true intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor from past performance and growth, alongside future business performance estimates. For Oracle, the GF Value suggests the stock is fairly valued, indicating that the stock price should align closely with the company's future business growth rate.
Financial Strength and Risks
Investing in companies with solid financial strength reduces the risk of permanent capital loss. Oracle's cash-to-debt ratio of 0.11, which is lower than 90.71% of its industry peers, suggests a higher financial risk. The company's overall financial strength is rated 4 out of 10 by GuruFocus, highlighting potential concerns for investors.
Profitability and Growth Prospects
Oracle has maintained profitability over the past decade, with a notable operating margin of 29.54%, which is superior to 95.22% of its competitors in the software industry. This strong profitability profile is complemented by a 3-year average revenue growth rate of 15%, positioning Oracle favorably against 65.2% of its industry peers. However, its EBITDA growth rate of 9.4% suggests mixed growth efficiency compared to the industry.
Comparing ROIC and WACC
A critical measure of profitability is comparing the Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC). Oracle's ROIC of 10.87 slightly exceeds its WACC of 10.63, indicating the company is creating value for its shareholders. This is a positive sign for potential investors looking for value-creating companies.
Conclusion
Oracle (ORCL, Financial) appears to be fairly valued based on the GF Value, with strong profitability metrics that may appeal to long-term investors. However, its financial strength poses some risk, necessitating careful consideration. For those interested in a deeper dive into Oracle's financials, visit the 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.
