We've been asking ourselves recently if the market has placed a fair valuation on Oracle. Let's dive into some of the fundamental values of this large-cap Technology company to determine if there might be an opportunity here for value-minded investors.
Oracle Is Fairly Priced to Earnings but Overpriced Compared to Its Book Value:
Oracle Corporation offers products and services that address enterprise information technology environments worldwide. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 35.0 and an average price to book (P/B) ratio of 7.92. In contrast, Oracle has a trailing 12 month P/E ratio of 32.2 and a P/B ratio of 82.84.
Oracle's PEG ratio is 1.98, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Strong Revenue Growth With Increasing Reinvestment in the Business:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $39,383 | $39,506 | $39,068 | $40,479 | $42,440 | $49,954 |
| Revenue Growth | n/a | 0.31% | -1.11% | 3.61% | 4.84% | 17.7% |
| Operating Margins | 34% | 34% | 36% | 38% | 26% | 26% |
| Net Margins | 9% | 28% | 26% | 34% | 16% | 17% |
| Net Income (MM) | $3,587 | $11,083 | $10,135 | $13,746 | $6,717 | $8,503 |
| Net Interest Expense (MM) | $2,025 | $2,082 | $1,995 | $2,496 | $2,755 | -$3,505 |
| Depreciation & Amort. (MM) | $1,165 | $1,230 | $1,382 | $1,537 | $1,972 | $2,526 |
| Earnings Per Share | $0.85 | $2.97 | $3.08 | $4.55 | $2.41 | $3.02 |
| EPS Growth | n/a | 249.41% | 3.7% | 47.73% | -47.03% | 25.31% |
| Diluted Shares (MM) | 3,817 | 3,331 | 3,046 | 2,694 | 2,746 | 2,817 |
| Free Cash Flow (MM) | $13,650 | $12,891 | $11,575 | $13,752 | $5,028 | $8,470 |
| Capital Expenditures (MM) | $1,736 | $1,660 | $1,564 | $2,135 | $4,511 | $8,695 |
| Current Ratio | 2.8 | 2.37 | 2.17 | 1.65 | 0.65 | 0.79 |
| Total Debt (MM) | $6,477 | $4,494 | $2,371 | $8,250 | $3,749 | $4,061 |
| Net Debt / EBITDA | -0.3 | -1.36 | -1.68 | -0.58 | -0.24 | -0.27 |
Oracle has rapidly growing revenues and increasing reinvestment in the business, exceptional EPS growth, and healthy leverage levels. However, the firm suffers from positive cash flows and not enough current assets to cover current liabilities because its current ratio is 0.79. Finally, we note that Oracle has decent operating margins with a negative growth trend.
