|Oracle for the Long
by Tom Gardner
ALEXANDRIA, VA, (June 17, 1997)/FOOLWIRE/ -- So Oracle announced 4th
quarter earnings today, did they?
I look forward to studying them. I haven't had the time to look them over
yet, but I assume the company put up 30-35% growth in sales and earnings
over the same period last year. Oracle certainly posted double-digit margins.
And their conference call will probably reveal powerful optimism about the
company's future in a digital world that demands a significantly speedier
and more artful management of data than ever before.
It's a demand that will grow exponentially over the next twenty years, so
long as Nostradamus was wrong.
No, I haven't seen the earnings report yet, but I assume it'll play out like
that. I don't mean to be too, too cavalier about it all. And I'm taking only
a very small risk here, betting that Oracle will post a healthy quarter.
That's because past performance is some sort of indicator of future results.
Oracle has been an awesome company, posting consistent and broad sales and
earnings growth over the past five years.
This is a radically different company than the one which battled through
The Troubles in 1991. Back then, Oracle was booking sales it shouldn't have
been. Investors who watched accounts receivable outpace income growth started
wondering just what in the heck "sales" and "earnings" meant. Not much, in
that environment. After all, I can sell you this article for $1,000 per copy,
charge you nothing, call it $1,000 in sales and $500 in earnings, see my
stock climb, and never have turned even a penny of profit. Oracle wasn't
selling Fool Portfolio reports for a thousand bucks, but the underlying principle
was the same.
Oracle's selling got way ahead of its serving.
Then enter from the right side, Ray Lane -- from the management-consulting
firm Booz, Allen and Hamilton. Lane brought performance standards, tighter
quantification, and an attentiveness to the bottom line. Each of these qualities
neatly integrated with CEO Larry Ellison's marketing talents, his flair for
things extraordinary and sometimes absurd. They played ping pong -- the spirit
of an Ellison idea merging with Lane's hard performance numbers; reality
Since the close of 1991, Oracle's stock has risen from a split-adjusted price
of $3 per share to its pre-earnings perch of $52 per share today. That totes
up to a growth rate of 68% per year. $10,000 invested in Oracle stock just
5 1/2 years ago is valued at over $170,000 today. If you're sitting on those
gains, even if you're sitting on just the stock's 37% returns over the past
year, I think you'd be unwise to look at today's earnings report and care
too much about it, one way or t'other. It should take more than a quarter
to rock you out of your position.
Going into the report, Oracle is showing the following underlying financial
Sales $5.2 billion
Earnings $1.1 billion
Profit Margins 21.2%
Cash $1.0 billion
Long-Term Debt $300 million
Flow Ratio 1.14 **
** The Flow Ratio is defined as: (current assets minus cash) / current
liabilities. It's a measure of how well the company is managing the flow
of its inventory & receivables relative to its payables. If you need
further clarification on this, drop by the
folder on the Investor's Roundtable board on our Web site. A fellow named
"Doubting Thomas" has been posting brilliantly there. **
The numbers show an extraordinarily sturdy business; the story tells of a
company prepared to manage data at the outset of the Age of Information and
Global Networking. Oracle wouldn't be here without Ray Lane's calculator,
and it wouldn't be here without Ellison's flair.
Of course, there's no such thing as a sure thing -- as Jon Cusack learned
in a movie. The unfortunate passengers on the Titanic lived that notion,
when 1,500 people went to the bottom of the Atlantic on April 15, 1912. Every
sound investment portfolio carries an oversupply of lifeboats... because
when the market corrects with the ten-ton force of a tsunami or tears your
hull like an iceberg, everyone heavily on margin, everyone without a lifeboat,
everyone employing the sure-thing strategy is going to breath undertow for
a long while.
Conversely, those not on margin, those investing, who have pounded into stocks
only what they could afford to part with for years, dropping it exclusively
into top-tier businesses -- their portfolios will snap back, with a vengeance.
Finding top-tier businesses in a dearly-valued market is crucial.
Oracle looks like one such business.
Next: Jim Surowiecki
on Oracle's unorthodox CEO