Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Oracle Corporation ORCL stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Oracle Corporation has a trailing twelve months PE ratio of 14.55, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 16.39. If we focus on the long-term PE trend, Oracle Corporation’s current PE level puts it below its midpoint (which is 16.75) over the past five years.
Moreover, the stock’s PE also compares unfavorably with the Zacks Computer and Technology sector’s trailing twelve months PE ratio, which stands at 22.18. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that Oracle Corporation has a forward PE ratio (price relative to this year’s earnings) of 13.02, so it is fair to say that a slightly more value-oriented path may be ahead for Oracle Corporation’s stock in the near term too.
Another key metric to note is the Price/Cash Flow ratio. Right now, Oracle Corporation has a P/CF ratio of about 11.84. This is slightly lower than the S&P 500 average, which comes in at 11.87 right now. Also, as we can see in the chart below, this is somewhat below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Oracle Corporation currently has a Value Score of C putting it into the top 40% of all stocks we cover from this look. This makes Oracle Corporation a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Oracle Corporation is just 1.34, a level that is slightly lower than the industry average of 2.10. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 11.45, which is noticeably better than the industry average of 19.19. Clearly, ORCL is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Oracle Corporation might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of C and Momentum Score of B. This gives ORCL a Zacks VGM score — or its overarching fundamental grade — of C. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been discouraging. The current quarter estimate witnessed two upward revisions in the past sixty days compared to six downward revisions, while the current year estimate witnessed five upward revisions compared to seven downward revisions in the same time period.
This has had a noticeable impact on the consensus estimate, as the current quarter consensus estimate remained declined 1.6% in the past two months, whereas the current year estimate declined 0.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Oracle Corporation Price and Consensus
Oracle Corporation price-consensus-chart | Oracle Corporation Quote
Owing to such bearish estimate trends, the stock has a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
Oracle Corporation is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a Zacks Rank #3, it is hard to get too excited about this company overall.
So, value investors might want to wait for estimates, analyst sentiment and broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
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