Should You Consider Investing in Oracle Stock Amid Recent Decline?

Oracle Stock

Oracle Corp. (NYSE:ORCL), renowned for its databases and cloud solutions, faced a setback on Dec. 12 as its stock plummeted by 12.4%. The dip was triggered by a revenue miss in the company’s fiscal second-quarter results, coupled with a cautious outlook that left investors wary.

This stumble occurs at a time when Oracle’s cloud growth, while still substantial, appears to fall short of expectations. The company is navigating a phase of heightened volatility and high expectations, particularly as the broader tech sector faces scrutiny in 2024, with investors seeking signs of sustainable growth amidst lingering economic uncertainties.

Given the recent sharp pullback in ORCL, investors may be wondering whether it presents a potential buying opportunity. To make an informed decision, let’s delve into the stock’s valuation, growth forecasts, and analysts’ expectations.

Oracle Stock: Performance And Valuation Metrics

Having been a major player in the tech industry since 1977, Oracle provides cloud computing, databases, and software solutions to a global customer base exceeding 400,000 across more than 175 countries. Despite the recent struggles since the Q2 earnings report—the stock’s second consecutive post-earnings bear gap following a Q1 disappointment—ORCL maintains a gain of 19.6% over the past 52 weeks.

Notably, both earnings-related drops in ORCL were linked to top-line misses and concerns over cloud growth. In both Q1 and Q2 of FY 2024, ORCL exceeded Wall Street’s earnings-per-share estimates. The stock also offers a 1.53% dividend yield, backed by nine consecutive years of growth. With a modest payout ratio of 29% and healthy free cash flow, ORCL has room for dividend hikes and share buybacks.

Oracle’s PEG ratio at current levels is 1.37, indicating that it is reasonably priced for expected earnings growth. Additionally, its valuation at 15.6x cash flow is a discount compared to most of its tech sector peers.

What Do Analysts Expect For ORCL?

Analysts foresee an 8.5% increase in adjusted earnings per share (EPS) for fiscal year 2024, along with a 7% revenue increase. Looking ahead to fiscal 2025, Wall Street targets 12% bottom-line growth and 8.3% top-line growth. Although ORCL’s growth prospects might not be as substantial as some other artificial intelligence (AI)-linked tech names, its forward revenue and EPS projections surpass tech sector medians. Coupled with its attractive valuation and appealing dividend yield, ORCL becomes a stock worth considering.

Analysts collectively rate the stock as a “moderate buy,” with 25 recommendations in total. Among these, 12 suggest a “strong buy,” while 13 recommend a “hold.” The mean target price for Oracle stock is $126.38, representing a 22% premium to current levels.

For investors willing to manage expectations regarding cloud growth, Oracle’s recent pullback could present a buying opportunity. With robust cash flow, a solid dividend payout, and consistent earnings growth, ORCL appears to be a potential value pickup at this juncture.

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