Why I Won't Sell Oracle

I'm a believer in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should be a believer, too. But even I have to admit that some growth stories are bogus, hence this regular series.

Next up: Oracle (Nasdaq: ORCL). Is this business software supplier the real thing? Let's get right to the numbers.

Foolish facts

Data current as of Nov. 24.

Before we get into what others think, allow me to admit a bias. Oracle is the largest holding in the Beyers family portfolio and a stock we've held since the fall of 2004. I've no plans to sell our position soon, and most Fools agree that's a good idea.

"There are already compelling reasons to own these stocks, but a falling dollar makes it all the more tempting to consider these names," wrote Foolish investor TrackSterman last month. "Not only that, but a busier export sector creates a virtuous cycle, as support businesses receive more orders to help provide goods and services to these large firms."

Our Fool is referring not only to Oracle but also to other big exporters such as IBM (NYSE: IBM) and Intel. The weaker dollar allows these companies to realize a windfall when converting foreign sales back to U.S. currency.

Others who like the database king cite its legal victory over SAP (NYSE: SAP), which, if a recent court ruling stands, will cost the German software supplier $1.3 billion in damages. An appeal is likely, but either way, cash-rich Oracle is likely to add to its coffers in the coming months.

The elements of growth

Source: Capital IQ, a division of Standard & Poor's.

Not that it needs the help. Thanks to a long list of smart acquisitions, including Art Technology Group most recently, Oracle has become a rapidly growing tech-infrastructure empire. Let's review:

• Both revenue and normalized net income growth are accelerating, which is exactly what we want as growth investors.
• Receivables have begun to grow more rapidly than revenue, but this may be due to a shift in Oracle's business model. The company now sells both software and hardware, and it takes more time to collect revenue from systems sales.
• Gross margin may be falling for the same reason. Hardware simply costs more to produce, and the Sun Microsystems group Oracle acquired built many of its own components.
• Shares outstanding are up from 2008 levels but down slightly from last year. This doesn't mean much; Oracle has a history of issuing shares for compensatory purposes and then buying back more than it issues.

Competitor and peer checkup

Source: Capital IQ, a division of Standard & Poor's. Data current as of Nov. 24.

Not surprisingly, Oracle is the fast grower in this table. Can it continue to be? I think so. IBM is a formidable competitor, sure, but HP isn't the value creator that some analysts think it is. Red Hat has a niche to protect, and Microsoft isn't selling big systems.

Grade: sustainable
The big problem with Oracle's growth story is that it depends on acquisitions and cost management, and that's usually possible only over a short period. Yet the database king has squeezed profits from deals over and over again across so many years that it's become a form of financial high art. Betting that CEO Larry Ellison and his team can't do it again is betting against the odds, in my view. That's why I won't sell my shares.

Now it's your turn to weigh in. Do you like Oracle at these levels? Let us know what you think using the comments box below. You can also ask Tim to evaluate a favorite growth story by sending him an email, or replying to him on Twitter.

Interested in more info on Oracle? Add it to My Watchlist.