Oracle (ORCL) is one of the most viewed stocks by Zacks.com visitors lately. So it might be worth looking at some of the factors that could affect the stock’s short-term performance.
Shares of this software maker have returned -14.5% over the past month compared to the -9.7% change in the Zacks S&P 500 composite. The industry Zacks Computer – Software, to which Oracle belongs, has lost 12.4% over this period. Now the key question is: where could the stock be heading in the near term?
While press releases or rumors about a substantial change in a company’s trading outlook usually “trend” its stock and cause an immediate price change, there are always fundamental facts that ultimately dominate the take. purchase and retention decision.
Revisions to earnings estimates
Rather than focusing on anything else, at Zacks we prioritize assessing change in a company’s earnings projection. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.
Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.
Oracle is expected to post earnings of $1.18 per share for the current quarter, representing a year-over-year change of -2.5%. Over the past 30 days, the Zacks consensus estimate has changed by -8.5%.
For the current year, the consensus earnings estimate of $4.98 indicates a change of +1.6% from the prior year. Over the last 30 days, this estimate has changed by -6.7%.
For the next fiscal year, the consensus earnings estimate of $5.52 indicates a change of +11% from what Oracle is expected to report a year ago. Over the past month, the estimate has changed by -3%.
With an impressive externally audited balance sheet, our proprietary stock rating tool – the Zacks Ranking – is a more conclusive indicator of a stock’s short-term price performance because it effectively harnesses the power of earnings estimate revisions. The magnitude of the recent change in the consensus estimate, plus three more factors related to earnings estimatesresulted in a Zacks Rank #4 (Sell) for Oracle.
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Revenue Growth Forecasts
While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.
In the case of Oracle, the consensus sales estimate of $12.06 billion for the current quarter indicates a year-over-year change of +16.4%. Estimates of $49.68 billion and $52.83 billion for the current and next fiscal year indicate changes of +17.1% and +6.3%, respectively.
Latest reported results and history of surprises
Oracle reported revenue of $11.45 billion in the last quarter, representing a year-over-year change of +17.7%. EPS of $1.03 for the same period versus $1.03 a year ago.
Compared to the Zacks consensus estimate of $11.47 billion, reported revenue is a surprise of -0.18%. The EPS surprise was -3.74%.
In the past four quarters, Oracle has twice exceeded consensus EPS estimates. The company has exceeded consensus revenue estimates three times during this period.
Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
While comparing the current values of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , with its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of the reasonableness of the stock price .
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.
Oracle is rated C on this front, indicating that it trades at par with its peers. Click here to see the values of some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information on Zacks.com might help determine whether it’s worth paying attention to the market buzz about Oracle. However, its Zacks No. 4 ranking suggests it may underperform the broader market in the near term.
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