Eye on Oracle

Aug 29 2012   8:22PM GMT

Oracle: It’s growing…

Lena Weiner Lena Weiner Profile: Lena Weiner

Oracle is a company Wall Street and a lot of folks love to hate. Analysts love to predict doom and gloom for Oracle. No one seems to really want to hear that Oracle just might be doing alright. As a result of this Wall Street prejudice against Oracle, is it possible that their stock prices may be undervalued?

This is what investment and business blogger Richard Saintvilius thinks. He believes that, with Oracle’s strong revenue growth of 20%, we’ve come to a point where doubters need to start changing their tunes and accepting what the numbers say – that Oracle is growing and there’s no denying it.

On the other hand, Rex Moore of The Motley Fool compares Oracle to AOL circa 2002— flush with goodwill on the spreadsheet (goodwill being the difference between the price paid for a company during an acquisition and the net assets of the acquired company) after AOL’s acquisition of Time Warner, AOL traded at high prices, then suddenly dropped when it was realized that their stock prices were overvalued. What matters, says Moore, is earnings. Many have cited Oracle’s apparent inability to profit on hardware since the Sun acquisition as a reason to distrust any apparent growth.

What’s the truth of the matter? Is Oracle overvalued or undervalued? Will the gods smile upon Oracle, or is it going to crash and burn à la Enron?

I think Oracle’s a pretty safe bet for growth. Why? Well, first, their business model of acquiring promising companies that are competent in what they do works for them. This strategy has led to Oracle being a heavily diversified company- It doesn’t matter as much if their hardware business isn’t doing as well if business intelligence, virtualization and healthcare are doing great. As a result of this diversification, Oracle can stay relevant with new products and in different industries in a way other companies, like AOL, could not. Oracle also has lots of cash on hand – this aspect very likely trumps the goodwill issue, and is something Oracle has going for it that AOL did not.

Like it or not (and there are plenty of people who don’t), Oracle seems not only to be here to stay, but to be growing.

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