Oracle Rises Against Speculations

Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Oracle Corporation’s (NYSE: ORCL) continues to follow an upward trend despite speculations suggesting otherwise. Oracle is one of the major players in the IT industry, and it sells enterprise IT solutions, including databases, middleware, applications, and hardware. The most profitable segment of the company is software license and product support, and this segment accounts for about 67% of total revenue for the firm.

Oracle has an active growth strategy, and under this strategy the company has made several acquisitions. Since fiscal year 2005, Oracle has investment around $38 billion on acquisitions. These acquisitions help the company in widening its scope of operations and strengthening its market position in the global market. Currently, the stock of the company is being traded within the range of $32.02 and $32.50. This price is close to the company's 52 week high of $33.29.

The major competitors of the company are International Business Machines Corporation (NYSE: IBM) and SAP AG (NYSE: SAP). The financial performances of all three of these companies can be assessed against the trend of their net income per share. The compound annual growth rate of the EPS of Oracle, IBM, and SAP is 14.6%, 10.3%, and 17.2%, respectively, showing that SAP has the highest in this group, while IBM has the lowest. Therefore, it can be said that the financial performance of Oracle is along the lines of the industry average.

Acceleration of Payment of Dividend

Oracle recently announced that it will accelerate the payment for second, third, and fourth quarter cash dividends, totaling $0.18 per share of outstanding common stock. This accelerated dividend will be paid on Dec. 21, 2012 to stockholders of record as of the close of business on Dec. 14, 2012. This news had a positive influence on the market performance of the company as the confidence of investors in Oracle increased.

Financial Performance of Oracle

According to the financial information disclosed by the company for the quarter ended in August 2012, Oracle showed a 2% decrease in revenue as compared to the same quarter in the last fiscal period. Oracle witnessed significant growth in its software business; however, the effect of this growth was negated by the equally significant decline in its hardware and services segment.

The net income of the company increased at an 11% rate. This increase can be directly attributed to Oracle’s triumphant attempt at reducing costs. This is despite the fact that the company increased its investment in research & development by 14%.

In the case of IBM, the company is also witnessing a decline in its hardware business. This decline is being observed industry-wide and it is due to shifting consumer demands. The consumers are moving towards more innovative hardware and the demand for the conventional hardware like PC's is falling gradually. Smartphones and tablets have taken up some of the market proportion from the companies that make the conventional hardware.

In my opinion, investors should buy shares of Oracle, as they are following an upward trend and the financial performance of the company suggests that it will be profitable in the future. Although the hardware segment of the company is facing a decline, the company is earning higher revenues from its other segments. These profitable segments will support the positive financial performance of the company in the foreseeable future. Therefore, the investors may find the stock useful for short term earnings.

In case of long term investment, the stock may not prove to be a good option, as the accelerated dividend by the company may keep prospective investors deprived of the dividend. Oracle’s stock is witnessing a significantly better growth as compared to the stock of IBM, which is following a flatter trend.

 


muhammadbazil has no positions in the stocks mentioned above. The Motley Fool owns shares of International Business Machines and Oracle. Motley Fool newsletter services recommend International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus