Oracle (NYSE: ORCL) Is Quickly Undoing It’s Post Earnings Dip

The stock market can be a funny place sometimes, as investors of Oracle (NYSE: ORCL) found out last week. Despite posting what looked like, on paper anyway, a solid earnings report on Tuesday night, their shares still tanked in the immediate aftermath. But Wall Street has had a few days to digest the numbers and it looks like the initial drop was a bit of an overreaction. Oracle was trading at all-time highs as we came into this month, and there’s a good chance they’ll be back up there by the time we leave it. 
Digging into the company fiscal Q4 report that caused this recent drop, there’s a lot to like at first glance. Both topline revenue and bottom line EPS beat analyst expectations rather comfortably, with the latter up more than 7% on the year. Cloud services and license support revenues were up 8% while cloud license and on-premise license revenues were up 9%. Interestingly, the company’s Cloud infrastructure revenue more than doubled compared to the same time last year, a pace of growth that should catch its fair share of attention. 

Impressive Numbers

Oracle CEO, Safra Catz, was understandably bullish on the performance and what this meant for the company’s outlook. In her address to shareholders she said "our Q4 performance was absolutely outstanding with total revenue beating guidance by nearly $200 million, and non-GAAP earnings per share beating guidance by $0.24. Our multi-billion dollar Fusion and NetSuite cloud applications businesses saw dramatic increases in their already rapid revenue growth rates: Fusion ERP was up 30% in Q3 and up 46% in Q4, Fusion HCM was up 23% in Q3 and up 35% in Q4, NetSuite was up 24% in Q3 and up 26% in Q4. Oracle Fusion is the world's biggest cloud ERP business; Oracle NetSuite is the world's second-biggest cloud ERP business.” 

While they may not be offering investors consistent double-digit percentage revenue growth prints right now, there’s still a lot to like about Oracle. Their price-to-earnings (P/E) ratio is only 17, a rare sub 20 score for a Silicon Valley giant and they’ve put in an impressive 2021 so far which is more than making up for a lackluster 2020. 

But for all this, their shares still gapped down 4% the following morning and kept going for much of the day. It looks like Wall Street took issue with management’s forward guidance for the current quarter, which was ahead of what analysts were expecting for revenue but light on EPS. However, the initial shock soon wore out and shares managed to put in a low by the time markets shut for the weekend. They’ve found a solid bid so far this week and it looks like they’re keen to get back into the multi-month uptrend that’s been ticking over steadily since last November.

Getting Involved

Investors getting involved should be conscious that Oracle is a little short on bullish voices in their corner right now. Societe Generale downgraded shares from a Buy to a Hold rating back in March, due to a “lower growth profile” compared to their peers, while Barclays downgraded them from Overweight to Equal Weight in May. In the aftermath of last week’s report both Piper Sandler and Jefferies reiterated their Neutral rating on the stock, with the latter in particular urging caution on the basis that the company’s growth figures don’t justify the recent rally. 

For all that though, you never really want to be fighting the tape, and if shares keep eating into last week’s dip, you’d have to back them to be clearing fresh all-time highs in the very near future. It’s worth remembering that despite what is a comparably low rate of growth, the tortoise can sometimes beat the hare. Shares are moving up from an RSI print that was in the 30s while the MACD is starting to turn north too. If the stock can clear the $84 mark with relative ease, we should be seeing more than a few of the sell side heavyweights suddenly get brave enough to come out with fresh Buy ratings.