Reading the sell-side research on Oracle (ORCL),
I’m struck by how frequently the analysts benchmark Oracle’s valuation
multiples (whether it’s P/E, EV/FCF, EV/revenue, et al.) against the
peer/industry group in an attempt to make the “Oracle is undervalued”
case, but neglect to benchmark the company’s revenue growth rate. While
margins and free cash flow certainly do matter, revenue growth is a
significant near-term driver for valuation multiples, and Oracle’s
growth rate is much more in the CA Inc. (CA)/IBM (IBM) neighborhood than the Microsoft (MSFT)/Adobe (ADBE) neighborhood of older tech stocks.
Given
the weak growth rate, the recent trends in Oracle’s position in
sell-side CIO surveys, and the company’s ongoing challenges with the
on-premises-to-cloud transition, I can’t work up much enthusiasm for the
stock. While many old-tech companies have faced challenges in their
attempts to renew themselves and remain competitive (Microsoft had its
issues, IBM is still in the middle of them…), I just don’t see enough of
a discount here to take on the incremental execution risk.
Read more here:
Like Other Old-Tech Names, Oracle's Value Is Tied To Its Ability To Reignite Growth
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