Is Oracle’s Stock Above Its Near Term Potential?

ORCL: Oracle logo

[Updated 06/04/2021] Oracle Update

Having grown by 60% since the end of FY 2019 (FY ends in May), Oracle’s stock (NYSE: ORCL) seems to be overvalued. ORCL’s stock grew from $51 at the end of FY 2019 to $81 now, compared to the S&P 500 which has gained 52% in the same time period. The company didn’t see much growth in revenue during the first nine months of FY 2021 – recording revenues of $29.2 billion, up 2% compared to the same period in the previous financial year. Earnings were at $9.7 billion, up 38% primarily due to a one-time net tax benefit totaling $2.3 billion related to the transfer of certain assets between subsidiaries in Q3 2021 (ended February 2021). Our Dashboard ‘Buy or Sell Oracle’s stock‘ has the underlying numbers.

Relevant Articles
  1. Up 11% In The Last Trading Session, What To Expect From Oracle Stock?
  2. Up 6% YTD, What To Expect From Oracle Stock In Q3?
  3. Oracle Stock To Top The Consensus In Q3?
  4. Oracle To Edge Past The Street Expectations In Q2?
  5. What To Expect From Oracle Stock?
  6. Oracle Stock To Beat The Consensus In Q4?

For FY 2021 we expect Oracle‘s revenues to grow by 2.8% to $40.2 billion and net income to be around $12.6 billion. For FY 2022 we expect revenue to be $41.4 billion, up 3.2%. Further, its net income is likely to rise to $13.2 billion, increasing its FY 2022 EPS figure to $4.58, which coupled with the P/E multiple of 15.8x will lead to Oracle’s valuation of $72, implying a 11% downside compared to the current market price.

[Updated 01/05/2021] Is Oracle’s Stock Overvalued? 

At the current price near $64 per share, we believe Oracle’s stock (NYSE: ORCL) has reached its near term potential. ORCL stock has risen 19% in FY 2021 (FY ends in May) compared to the S&P 500 which has increased by 22% in the same period. Oracle saw revenue rise by 2% in the first 2 quarters of FY 2021. For Q2 2021 (ended Nov 2020) revenue nearly rose by 2% to $9.8 billion while earnings improved to $0.82 compared to $0.71 in the same period of the previous year.  The company has seen earnings rise over the recent years, while its P/E multiple has been fluctuating. We believe the stock has reached its near term potential.

The 42% rise in ORCL stock price from FY 2017 to now is justified by a significant rise in earnings during those years. Oracle’s revenue rose from $37.8 billion in FY 2017 (ended May 2017) to $39.1 billion in FY 2020 (ended May 2020). Net Income margin increased from 25% in FY 2017 to 25.9% in FY 2020. On a per share basis, earnings went up from $2.30 to $3.16 helped by a 22% decrease in shares outstanding.

During the same period, the P/E multiple fell from 19.9x to 17x. The P/E improved in 2020 and is currently at 20.2x.

Where Is The Stock Headed?

The global spread of coronavirus led to lockdown in various cities across the globe, which affected industrial and economic activity. This is likely to adversely affect consumption and consumer spending. Oracle’s revenues and earnings grew in the first half of FY 2021. Revenues for the first half were up 2% to $19.2 billion compared to $18.8 billion in the same period of the previous year. EPS meanwhile was recorded at $1.56 compared to $1.36 for the same period of the previous year. The rise was primarily due to a shift to Cloud services by various organizations across the world.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view.

While Oracle stock may have moved, it is helpful to see how its peers stack up. Check out Oracle Peer Comparisons to see how Oracle compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.


See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams Product, R&D, and Marketing Teams