Investors will be closely watching Oracle Corporation [NASDAQ: ORCL] stock both today and in Thursday’s trading. That’s because, the company is expected to release its Q3 results at the close of Wednesday’s trading. Analysts are expecting the company’s earnings per share to grow by 8% and hit $1.07 per share. However, they expect the company’s sales to weaken by 2.7% to hit $10.95 billion in Q3.
The expectation for weakness in sales is driven mainly by the fact that, the company has been under-performing other tech giants such as Microsoft and Salesforce.com in the cloud services market. The company has under-performed them in this market for the past 5 years.
Oracle’s performance could be a reflection of its approach to getting into the cloud market. The company opted to grow in this market through acquisitions. This strategy has seen the company buy 53 companies over the last 8 years. While this strategy has given the company has a strong footing in the cloud market, it has dent its growth prospects in the short-term, hence its continued under-performance.
However, Oracle’s long-term prospects in the cloud market do look promising. That’s because, the company is still in transition to the cloud market, and the acquisitions have given it a foothold in the market. Once it is through with the transition and all the acquired companies are fully in line with the Oracle culture, the company is likely to post much stronger numbers. In essence, while investors can expect the company to keep posting mixed financial numbers in the short-term, it’s likely to get much stronger in the long run. This also makes Oracle possibly undervalued at current prices.
Some of the company’s numbers that make it undervalued is the forward Price to earnings ratio. While the tech industry has roughly a forward P/E of 27.5X, Oracle has a forward P/E of 13.9X.
This may reflect the company’s under-performance relative to other tech giants, but it also reflects its undervaluation, when its acquisitions potential is put into consideration. Besides, the company’s bottom-line looks pretty solid. For instance, the company’s profit margins stand at about 27% and its operating margins are even higher at 34.50%, with a net income (ttm) of around $10 billion. This shows that the company is making money from its product offering. These numbers are likely to look even better once it establishes itself fully in the cloud market. That’s because, software delivery via the cloud is much cheaper, and more efficient. With reduced costs in a high growth market, both the top line and the bottom-line are likely to get much better over time.