Oracle Stock Is Nowhere Near as Terrible as You Might Think

Oracle stock - Oracle Stock Is Nowhere Near as Terrible as You Might Think

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Most blue chips boast robust debates between bulls and bears. Not Oracle (NYSE:ORCL). When I was searching for bullish arguments favoring Oracle stock, most of my articles popped up!

Sure, on a personal level, it’s mildly flattering, but more so, it’s disconcerting. Even the most ardent contrarians like to find at least another person sharing their views.

So what are the lonely bulls missing? To best answer that requires looking at the opposing view. One of the common bearish themes is competitive risk.

I like how our own Bret Kenwell put it, calling the burgeoning cloud-computing market “hot, hot, hot,” while labeling Oracle stock as “not, not, not.” Sure, it’s tongue-in-cheek, but he has a point.

The Case Against Oracle Stock

Oracle is a solid company, but admittedly, its growth rate isn’t that exciting. In its last earnings report, the database provider turned cloud competitor grew revenues only 3.3% year-over-year.

As a sharp contrast, (NYSE:CRM) delivered over 25% sales growth in its monstrous first-quarter fiscal 2019 earnings report.

Even stalwart Microsoft (NASDAQ:MSFT) managed double-digit YOY revenue growth at 15.5%. It’s not surprising, then, that CRM is up nearly 44% year-to-date, while MSFT has gained a very healthy 23%.

As for Oracle we’re talking only 3.5%, and that’s through fortunate timing. At the start of this month, Oracle was down almost 5%.

Part of the issue is a lack of decisive, strong leadership. As a highly-respected and world-renown database provider, Oracle really should be dictating terms, not following trends.

Worse yet, the financials for Oracle suggest management isn’t committed enough to developing cloud infrastructures. Salesforce, Microsoft, and Amazon (NASDAQ:AMZN) are increasing capital expenditures. With Oracle, cap-ex has largely stayed consistent year to year.

Oracle Stock Has Lots of Positives

Please note that I sympathize with folks frustrated with the company. From an outsider’s view, there seems to be a lot of potential, but it’s not being fully exercised. Therefore, it’s not surprising that Oracle stock displays incredibly choppy behavior.

But I also want to emphasize that Oracle is not completely devoid of positive catalysts. If you look under the hood, or read between the lines, you’ll see why the (rare) contrarians remain hopeful.

First, the company sits on a very healthy cash balance of $67.3 billion. Even though long-term debt has risen sharply to $56.1 billion, that still leaves more than $11 billion “clear.” More importantly, this greenback account gives management options. Whether they use it or not is a different story, of course.

However, in terms of cash, Oracle is better positioned than Amazon ($25 billion cash versus $24.6 billion debt). The same is also true of Salesforce, which has $7.2 billion cash against $3.2 billion debt. Microsoft is a cash titan, but you also must consider that it’s a jack-of-all-trades organization.

This transitions to my second point, which is that Oracle doesn’t necessarily need to spend gobs of money to become an effective cloud-computing company.

Oracle didn’t pop out of nowhere; they have an extensive corporate clientele which they can convert. In other words, they’re not starting from scratch.

On a related note, I also think we should focus on apples-to-apples comparisons. Oracle is a genuine blue-chip investment. A company like Salesforce is comparatively an upstart, and will therefore feature a higher growth rate.

Finally, Oracle isn’t lying down. Innovations, such as its Blockchain as a Service platform, ensures its continued relevance.

The Cloud Is an Expansive Market

This point seems obvious but I believe it’s worth reiterating: the cloud is a broad and expansive market. No one way to cloud exists. Bears should therefore be careful in writing off Oracle stock simply because the underlying company does things differently.

Undoubtedly, sexier and more marketable cloud options are available to the customer. But Oracle has mostly focused on high-dollar, multinational clients.

While smaller competitors have buzzwords, Oracle has a long, proven track record of handling gargantuan data transactions. This is why the titans of industry like AT&T (NYSE:T) trust Oracle.

As I mentioned in my last write-up, Oracle is also delivering scalability. Thus, management is no longer limiting itself to just big customers. Here, I’m more confident that a renowned institution can snag smaller customers, rather than an upstart trying the opposite.

Granted, Oracle stock hasn’t cooperated with the fundamentals. And I concede that investing in ORCL shares requires faith that management will tighten up the ship.

But if you’re considering this now, and haven’t suffered the years of frustration, ORCL is more compelling than a cloud company whose bullish story must surely be baked in.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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