Wow! I don’t think I have seen such an oversold and undervalued stock since the end of the 2008 recession. It’s incredible that such a strong company can be worth so little compared to what it could and should be at. Just a few months ago, Oracle (ORCL) was trading for $34.00 per share. In 3 months, Oracle’s share price has fallen more than 25% for almost literally no reason whatsoever. 
The growth that ORCL has shown is unprecedented. It continues to grow revenue, beat earnings estimates, and increase its cash and equivalents every quarter. Not even the recession was able to knock it down or even slow it down. During such a tough time, ORCL managed to increase its revenue while others declined. It beat earnings estimates during this period while others fell short. It even managed to boost its cash reserves while others spent whatever cash they had available just to stay stay afloat. The three graphs below show the upward trends that were just discussed.
Values In Millions
Values In Millions
Barely glancing at any of these graphs, you can see that Fiscal Year 2011 was particularly successful for Oracle. During this period it drove its revenue up to $35,622 million from $26,820 million the prior year, which is a 32.82% increase. Earnings per share mirrored this trend exactly with an increase of 32.93%. The biggest jump was in cash and cash equivalents. It managed to increase its cash from $9,914 million in 2010 to $16,163 million in 2011. That’s an astonishing 60.03% increase. You might be asking what it could possibly do with such massive reserves. This is strictly speculation on my part, but I think it may be looking towards an acquisition.
You might be wondering whom Oracle could possibly buy. I’ve wondered this myself, and after much thought I believe I have an answer. If Oracle were to attempt an acquisition, I think it might go after Dell (DELL). There are a couple of reasons I see Dell as being an acquisition target. First off, it is fairly cheap. Dell is a far cry from its all-time high of $42.55/share, currently at $14.00/share and with a market capitalization of just $26.4 billion, Oracle could put up quite a premium. Oracle could use Dell to offset its 4th quarter 6% decrease in hardware sales and with hardware becoming such a high margin business, it has the potential to see huge returns. Again, this is strictly speculation and I don’t see this happening in the near future due to current economic conditions, but the idea is still out there.
Among Oracle's peers are International Business Machines (IBM) and Microsoft (MSFT). Both of these companies are very large and have been around quite a bit longer than ORCL. They both make about double Oracle's revenue, with IBM making almost 2.5 times, and with both companies' net income being almost double, with MSFT making almost triple. Despite this, throughout the past 12 months, ORCL has out-performed both MSFT and IBM. Now I’m not talking about out-perform by a couple of percentages. Back in April and May, ORCL was out-performing IBM by about 10% and was out-performing MSFT by about 40%. The graph below shows these trends.
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Finally, to conclude my thoughts, average analyst 12 month target price is $40/share. At a current price of $24.78, this presents an opportunity for 61% for just one year. Now tell me, would you skip out on 61% to invest in Microsoft, whose share price has been stuck between $25 and $35 for the last 10 years? Be smart, the time is now. Invest in Oracle.
Disclosure: I am long ORCL.
