Oracle (ORCL) is continuously resetting all-time highs, and the recent heavy-volume rally looks like it has legs.
ORCL stock finished up 1.4% in Tuesday’s trades to hit $41.49 per share, but this tech giant’s momentum stretches back a couple of weeks. Oracle shares are up 9.5% for the year-to-date, with most of that coming since March 21. (Indeed, ORCL stock gained nearly 12% since that time.)
Oracle has been the beneficiary of some good market-share news and fundamental analysis, which is helping to lift ORCL stock:
- Market-research firm Gartner found that ORCL replaced International Business Machines (IBM) as the No. 2 software maker last year — second only to Microsoft (MSFT).
- Wall Street is becoming increasingly confident that Oracle can navigate the transition to cloud-based services. BMO Capital reiterated its “outperform” rating (buy, essentially) on ORCL stock Tuesday partly because the analysts see Oracle’s cloud-services business gaining momentum.
- Additionally, the Street thinks new products in the ORCL hardware business — as well as improvements in the sales force — should add to revenue and profits. And pricing power in the form of higher subscription revenues should provide a steady stream of high-margin revenue as a base to build on.
- Also helping the case for ORCL stock is that the company has delivered a positive earnings surprise of 1.4% over the past four quarters, according to Zacks Investment Research.
ORCL Stock Still a Buy Based on Valuation
Happily for new money, ORCL stock looks to have significant value left in it despite the recent run-up in price.
By forward price-to-earnings, ORCL stock trades in line with its own five-year average, according to Thomson Reuters Stock Reports. What’s more attractive is that ORCL stock trades at a 9% discount to its own-five-year average on a trailing earnings basis.
ORCL stock also looks like a bargain when compared to the broader market. The S&P 500 currently sports a forward P/E of more than 16%, but a long-term growth rate of a bit less than 10%. That’s part of the argument that stocks are pricey.
By the same token, ORCL stock has a forward P/E of 13 (much lower than the S&P 500) and a long-term growth rate of 10.5% (a bit higher than the broader market). Based on relative valuation alone, ORCL stock looks like a bargain vs. the S&P 500.
Finally, Oracle is projected to have solid revenue growth in the upcoming quarters — no mean feat for any company these days, especially a tech giant. Sales are projected to rise about 5% in both of the next two quarters. The Street’s full-year forecast also points to top-line growth of 5%.
ORCL stock has a head of steam and it’s rapidly approaching an all-time high. With more catalysts to come, Oracle will take that out with little trouble.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.