Oracle Corp (ORCL, Financial) has recently seen a daily gain of 1.87%, and a 3-month gain of 14.43%. With an Earnings Per Share (EPS) (EPS) of 3.06, the question arises: is the stock modestly overvalued? This article aims to answer this question by providing a comprehensive valuation analysis of Oracle Corp (ORCL). We invite you to read on for an in-depth understanding of the company's financial standing and future prospects.
Company Overview
Oracle Corp, a global leader in database technology and enterprise resource planning software, was established in 1977. The company, which pioneered the first commercial SQL-based relational database management system, now serves 430,000 customers in 175 countries with its 136,000 employees. The company's stock price currently stands at $123.19, while the GF Value, an estimation of its fair value, is $97.7. This discrepancy hints at a potential overvaluation.
Understanding GF Value
The GF Value is a proprietary measure that denotes a stock's intrinsic value. It is computed based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future estimates of business performance. The GF Value Line provides a visual representation of a stock's fair trading value.
According to our calculations, Oracle Corp (ORCL, Financial) appears to be modestly overvalued. With a current market cap of $334.40 billion and a stock price of $123.19 per share, the future return of Oracle's stock is likely to be lower than its business growth due to its overvaluation.
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Financial Strength
Investing in companies with low financial strength could lead to permanent capital loss. Thus, it is crucial to review a company's financial strength before investing. Oracle's financial strength is rated 4 out of 10 by GuruFocus, indicating a weak balance sheet. This rating is based on a cash-to-debt ratio of 0.11, which is lower than 92% of 2736 companies in the Software industry.
Profitability and Growth
Investing in profitable companies, especially those with consistent long-term profitability, is generally less risky. Oracle has been profitable for the past 10 years. With a revenue of $50 billion and an EPS of $3.06 in the past twelve months, Oracle's operating margin stands at 27.37%, ranking better than 93.94% of 2723 companies in the Software industry. This indicates strong profitability.
However, Oracle's growth ranks worse than 50.18% of 1989 companies in the Software industry, despite an average annual revenue growth of 15%. The 3-year average EBITDA growth is 9.4%.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. Oracle's ROIC stands at 9.88, slightly below its WACC of 10.07, over the past 12 months.
Conclusion
In conclusion, Oracle appears to be modestly overvalued. Despite its strong profitability, the company's poor financial condition and below-average growth could impact its long-term returns. For a more detailed financial analysis of Oracle, you can review its 30-Year Financials here.
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