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Oracle Results
Oracle (ORCL) stock jumped by over 13 percent last week after reporting quarterly results. The company easily beat both revenue and EPS estimates. The company also noted on its conference call it expected to see it is looking for solid y/y first quarter non-GAAP EPS growth.
ORCL Price data by YCharts
EPS Growth Mystery?
Oracle shares trade at 2018 forward PE of 16 and 2018 forward PEG ratio of 0.80. The shares appear relatively cheap. Â However, Oracle only managed to grow GAAP top-line revenue by 3 percent, yet was able to grow GAAP net income by 15 percent.
GAAP Operating income also grew by only 3 percent. All of Oracle EPS “Growth” came from saving in income tax provision which declined by 42 percent to $529 million.
On an adjusted Non-GAAP basis we also find that revenue only by 3 percent, while operating income grew by only 5 percent, but yet net income grew by 10 percent. Again it was the tax saving of 15 percent that saved the quarter and provided the growth.
The Expectations
Revenue is only expected to grow to $41.69 billion, or 10 percent from 2017 total revenue over the next 3 years.
ORCL Annual Revenue Estimates data by YCharts
EPS estimates expected nearly 23 percent to $3.36 Unlock Deeper Insights with Exclusive Member-Only Video Content on The Market Chronicles YouTube Channel – Just $34.99/Month
ORCL Annual EPS Estimates data by YCharts
Not Cheap
Suddenly, when you look at this way, one is paying 16 times for a company growing revenue only 10 percent over the next three years and is figuring out creative ways to increase EPS.
In this case, just beware what kind of growth one is buying.
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Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.