There has been much talk over the past month regarding whether Oracle has become a value stock. The shares were latecomers to the recent market rally and sold off after their earnings report due to investor disappointment at the growth in their core database business.

The software industry had too many companies chasing too few dollars, and balance sheets too strong to cause any competitors to bite the dust. There is only one way to fix that situation, and that is for an industry leader to soak up the excess capital by leveraging its own balance sheet to acquire other companies – for cash, not shares. Oracle has been pursuing that fix, beginning with the PeopleSoft acquisition and most recently with the buyout of Siebel Systems.

The problem with this fix is that it takes some time and during that time the largest rival, SAP, has enjoyed an easy road. Oracle is busy making and selling product, but also integrating the acquisitions. SAP only has to focus on the core business. Given the short-term horizons of many investors, it is easy to see why Oracle shares are stuck in neutral. So the next question is how to know when to become more bullish. One way is to take cues from the market. There will likely be a point in the next year or so at which the same type of mixed news that caused a selloff today will spark a rally. That will suggest that the market has become comfortable with ORCL’s strategy and believes the worst is over.

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Topics: Oracle (ORCL), Software and Programming, Stock Market, Technology | RSS

One Comment on “Oracle”

  1. [...] The application software industry is no longer in the hyper-growth mode. As we have said before, we think Oracle’s consolidation moves are the right strategy for the new reality. The author may hold a position in the securities discussed. A current list of the author’s holdings is available here. [...]

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