Thus far, Oracle (NYSE:ORCL) stock hasn’t been a bad investment.

Performance over the past 12 months looks particularly impressive, with ORCL stock rallying 40.52%.

And I can see why some investors would assume more upside ahead. ORCL stock is cheap, at about 17x earnings. The company is stable, with leadership in key software categories. A 1.7% dividend yield perhaps doesn’t jump out, but it’s still better than the 10-year Treasury bond.

But both the performance and the valuation need to be put in context. ORCL stock hasn’t been a bad investment looking backward. It’s probably not a terrible investment going forward, either.

In this market, however, with so many opportunities in software and elsewhere in tech, that’s not enough.

ORCL Stock’s Performance

ORCL stock has done well in recent years — but the market has done better.

The rally over the last 12 months actually trails the 64% return in the NASDAQ Composite. Many software stocks have more than doubled over that stretch.

The decade-long performance significantly lags: the NASDAQ has nearly quintupled.

It’s not difficult to understand why. Oracle simply isn’t growing fast enough. In fact, in software, the optimism has been toward companies that operate “in the cloud.” Oracle is still in the midst of a transition away from legacy on-premise offerings.

That transition has yet to impress. Fiscal third quarter results, reported last month, showed total revenue growth of just 3% year-over-year.

That performance is not an outlier. Over the decade between FY2010 and FY2020, Oracle’s sales increased at an annualized rate of less than 4%. And that’s with some help from acquisitions, notably the $9 billion purchase of NetSuite back in 2016.

Bear in mind that modest growth has come at a time when software, as the famous essay put it, has been “eating the world.” It’s hard to look at those numbers and see Oracle as a key part of such a growth market.

Can Cloud Change the Game?

Obviously, Oracle knows it’s not growing fast enough. And so it’s trying to catch up.

It’s moving its on-premise ERP (enterprise resource planning) and CRM (customer relationship management) applications to the cloud. And it’s focusing on its own public cloud business as well.

As an Oracle executive told Barron’s, “There’s no way that in the next two or three years, Oracle will be viewed as anything but a cloud company.”

But let’s understand what that statement, and what this transition, really mean.

The executive probably is right. Oracle will be viewed as a cloud company. Here’s the catch, though: every software company will be viewed as a cloud company.

That’s simply where the entire market is moving. There will be exceptions, certainly. For reasons of security or performance, certain applications will remain on-premise or in so-called ‘hybrid’ environments.

Those will be small exceptions, though. And so simply moving to the cloud isn’t really a game-changer. In Q3, for instance, Oracle highlighted big growth in cloud offerings. Cloud autonomous database revenue more than doubled; NetSuite Cloud ERP sales increased 24%.

Yet, again, total revenue rose just 3%. That’s because the cloud growth is simply cannibalizing on-premise sales. For the most part, cloud revenues simply are the same revenues delivered in a different way.

So, yes, Oracle will be a cloud company. But that’s like saying a car company will in two decades be viewed as an electric vehicle company. It’s true — but true for essentially every company in the market. It doesn’t make Oracle stand out.

ORCL Stock Looking Forward

Let’s be fair. ORCL stock isn’t priced for torrid growth. Q3 earnings were solid, even if the stock initially saw a somewhat steep sell-off. (Shares had rallied into the report, and since have recovered the losses and then some.)

So, again, this probably isn’t a bad investment going forward.

I still believe investors can do better. Software is one of the most attractive end markets in tech. Profit margins are high. The shift to cloud-driven recurring revenue adds ‘sticky’ customers that drive long-term growth.

In that kind of market, investors should be aiming for the big winners — the kinds that alone can drive significant outperformance for an entire portfolio.

At this point, Oracle is highly unlikely to be that big winner. A good company? Yes. A good stock? Probably. Good enough? Not quite.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.

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