Stock Analysis

Oracle Corporation (NYSE:ORCL) Not Lagging Market On Growth Or Pricing

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NYSE:ORCL
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When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider Oracle Corporation (NYSE:ORCL) as a stock to avoid entirely with its 28.7x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Oracle certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Oracle

pe-multiple-vs-industry
NYSE:ORCL Price to Earnings Ratio vs Industry December 28th 2023
Keen to find out how analysts think Oracle's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Oracle's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Oracle's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a decent 14% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 9.2% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 15% each year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 13% per annum growth forecast for the broader market.

In light of this, it's understandable that Oracle's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Oracle's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Oracle maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Oracle you should know about.

If these risks are making you reconsider your opinion on Oracle, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we're helping make it simple.

Find out whether Oracle is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.