Information technology firm Oracle Corporation (NYSE:ORCL) is due to release its fourth-quarter results after the bell on 21 June. While ORCL stock has already had a bumper year, climbing nearly 20% since January, the firm is still a good buy ahead of what’s slated to be an impressive earnings release.
Oracle wowed investors during its third-quarter earnings call with better-than-expected revenue figures and strong growth prospects for the future. I’m expecting to see similarly impressive results on Wednesday, as the company solidifies its position as a tech giant with a successful turnaround.
ORCL Stock: Undervalued
One of the biggest reasons Oracle is a buy is the fact that the stock is still undervalued despite it’s 19% rise so far this year. The firm’s price-to-earnings ratio sits at just 21.62, but even more enticing is its price/forecasted earnings ratio — just 16.3. Compare that with peers like Adobe Systems Incorporated (NASDAQ:ADBE) or Salesforce.com, Inc. (NYSE:CRM), trading at 35.56 and 67.30 times forward earnings, respectively, and you’ve got a pretty good bargain on your hands.
Oracle has been overlooked by investors in recent months because the company has been in the midst of a turnaround. The firm has been slowly shifting from being a hardware company to becoming a software and service business, a shift that came a little bit later than investors would have liked.
Oracle Earnings: Cloud Computing Wins
As with most successful tech firms, Oracle is placing its bets on cloud computing. Although it took the company a bit longer than some of its peers to get behind cloud computing, the firm has been making major strides into the industry, a big reason for ORCL stock’s gains so far this year.
The third-quarter results showed that Oracle’s cloud software as a service and platform as a service businesses grew at an impressive rate of 85%, bringing the value of its total cloud business up to $5 billion.
Wednesday’s results are likely to show more of the same for ORCL. Investors can expect to see another quarter of hyper-growth for Oracle’s cloud business, a factor that will likely help the firm beat analysts’ expectations of EPS of 78 cents on revenue of $10.45 billion.
Still Some Struggles
It’s important to note that ORCL stock is still facing some obstacles that will probably drag on the firm’s results. For one, investors can expect to see currency headwinds make a significant dent in Oracle’s revenue figures.
Secondly, as I mentioned before, the firm is in the midst of a changeover between being largely a hardware business to becoming more of a software and service firm. Oracle earnings are likely to show that the company’s hardware segment continued to decline as demand for hardware products continues to dwindle and management shifts its attention toward more profitable businesses.
Wall Street’s prediction of $10.45 billion revenue figure suggests a decline from Oracle’s fourth-quarter results a year ago. However, there’s a good chance that ORCL will beat analysts’ expectations and report revenue level with, or even above last year’s figures. That would mean that ORCL’s cloud computing arm has grown significantly enough to offset a steep decline in hardware sales.
The Bottom Line
Cloud computing will be the major focus of Oracle’s fourth-quarter results and it’s unlikely that the firm will disappoint. Investors can expect to see ORCL stock make significant gains following the report, even if it simply meets expectations.
Owning Oracle stock for the long-term is a good move because the firm is undervalued when you consider its massive growth potential in the decade to come. Traders would be wise to capitalize on the firm’s low share price now before a surge following its earnings report.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
