If you are still holding on to shares of Oracle (ORCL - Free Report) in your portfolio, it is time you dump them as chances of favorable returns in the near term appear bleak.
Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. One such stock that you may want to drop is Oracle. It has witnessed a significant price decline in the past one year and negative earnings estimate revisions for the fiscal 2019 and fiscal 2020. Further, the company’s Zacks Rank #4 (Sell) only highlights its innate weakness.
Oracle’s shares have declined 7.4% in the past year against the industry’s growth of 31.5%.
Let’s delve deeper and analyze the factors dragging the company down.
Why Oracle Should be Avoided
The share price decrease can possibly be attributed to the new accounting standard adopted by the company and the structural changes which it has undergone in the fourth quarter.
Consequently, the company now reports its new software licenses under its new Cloud license and on-premise license segment. Further, the company merged its Cloud SaaS, Cloud PaaS and IaaS along with its software license updates and product support into Cloud services and license support.
Oracle no longer intends to break out its cloud revenues and does not provide any guidance on SaaS, Cloud PaaS and IaaS. This move is likely to aggravate investor concern regarding the company's outlook.
Moreover, stiff competition in the cloud is expected to hurt margins and will make revenue growth difficult, going forward. Further, large acquisitions can negatively impact the company’s balance sheet in the form of a high level of goodwill and intangible assets. Further, lawsuits and currency volatility owing to its transitions from licensing to cloud is likely to be affect Oracle.
For the full year 2019, we have witnessed four estimates moving south in the past 60 days. This trend has caused the consensus estimate to trend downward from $3.38 per share to its current level of $3.37.
Additionally, for the full year 2020, Oracle has seen three downward estimate revisions, dragging the consensus estimate down to $3.67 per share from $3.69 per share in the past 60 days.
Moreover, combined with other unfavorable factors like low return on equity (ROE) and low return on Asset and low return on capital (ROC), the stock looks very unattractive. Oracle currently trades at a ROE of 25.6%, lower than the industry average of 32.2%. Moreover, its ROA and ROC looks very uninspiring. It currently trades at a ROA of 9.7% and ROC of 11.3%, compared with an average positive industry average of 11.1% and 16.6%, respectively.
Given the unfavorable factors and Zacks Rank #4, we think the shares might be at a risk. So, it may not be a good decision to retain this stock in your portfolio anymore, at least if you don’t intend to wait for a long time.
Garmin Ltd. (GRMN - Free Report) , Salesforce.com Inc (CRM - Free Report) and Aspen Technology, Inc. (AZPN - Free Report) are stocks worth considering in the broader technology sector. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Garmin, Salesforce and Aspen are currently pegged at 7.35%, 25%, and 16.52%, respectively.
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