If there's one thing that Oracle Corporation (NYSE:ORCL) may have forgotten this year that, fortunately, they're remembering now, it's that even a bad quarter for ORCL is still better than a great quarter for, say a competitor like SAP AG (NYSE:SAP) or Intuit Inc. (NASDAQ:INTU). While SAP and INTU are fine companies, neither of them offer the valuable and reliable growth prospects that Oracle do at this point. Better still, of the three, ORCL shares look far better positioned than Intuit or SAP AG do to stage a year-end (and year-beginning) breakout.
If you're reading this, then you likely already know the encouraging Oracle news. No need to rehash it. Rather, taking a step back and looking at the bigger picture may help put yesterday afternoon's news in perspective. After all, a picture is worth a thousand words.
The image below says it all. Not only does it plot the action (or lack thereof) from ORCL over the past couple of years, it also plots the per-share income (quarterly and trailing twelve-months) going back for the past decade. As is visually evident, Oracle Corporation had been posting steady growth... up until early this year, when a long chain of income growth (particularly in the second quarter) was broken. For the first time in a long time, trailing twelve-month income fell.
That being said, it's not as if the market didn't know there was some trouble on the horizon well before a year ago. As the same chart shows, ORCL shares stopped making forward progress in mid-2011. That's when the stock started to hit a ceiling right around the mid-$36's, beginning the formation of what would become a wedge pattern (the lower edge of which is framed by a rising support line). Now, however, that wedge shape maybe working to our advantage. With nowhere else to run now that it's at the tip of the triangle, ORCL looks like it's itching to break above that resistance at $36.50, and use a year and a half's worth of consolidation as breakout fuel.
That's sharp contrast to the kind of action we've been seeing from Oracle Corporation and SAP AG, on a technical as well as a fundamental basis.
For SAP, while the earnings growth rate has been basically commendable, it's also been amazingly choppy and unreliable. Perhaps even more troubling with SAP AG is how the stock's persistent runup despite uneven income has left shares priced at a relatively frothy P/E of 24.6. Granted, you own a stock for where it's going rather than where it's been, and the forward-looking P/E of 22.0 makes SAP a little more palatable. But, know that this company has missed estimates in five of the past seven quarters. So, there's a good chance that projected P/E is out of reach for SAP AG.
As for Intuit Inc., its income growth has been far more reliable (more reliable than most any other company in any sector, in fact), but that consistency doesn't come at a cheap price. INTU shares are priced at an even frothier P/E of 29.3, and there's not a lot of opportunity for Intuit to "grow into" its valuation anytime soon... the downside of consistent revenue growth is that it's also often capped.
Bottom line: If you're looking for a new technology pick, particularly from the enterprise software and cloud computing space, Oracle is your best bet. SAP AG and Intuit are overbought, in addition to being overpriced.
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