ORCL Undervalued? Jacob Shonenshine Makes Bull Case in Stock's Bear Market

SPEAKER_1 (0:00)

Jacob Shonenshine, Stockpik Rider, Ovid Barron. Jacob, thank you so much for your time. We're under pressure today, but let's just talk about why you think ORCL is a buy here. I mean, it's off, what, 26% year to date.

What makes this such a good entry point right now?

Jacob Shonenshine (0:18)

If you want to look at the technicals for a really quick second, because you're concerned about the downside and how rough a ride it's been this year, then you can look at somewhere in the low 100s to somewhere around 160, 165 That's the big trading range that it's stayed in. So you can buy some here or you could buy some at 120 or 110 if it goes down a little bit. But it's trading at, if I remember correctly, I mean, it's definitely in the low 20s on a PE, no higher than that. If I remember correctly, it might even be at this point below the S&P 500 under forward price to earnings. This is a higher growth company in the S&P 500 in aggregate and it's going to be higher quality. It isn't today, but it's going to be. If you look at the earnings, a couple of things that you saw was not only better than expected sales and earnings coming from the right segments, the high growth AI compute segment.

But you saw the companies say, moved from last quarter saying we expect $90 billion in fiscal year total revenue to this quarter saying at least 90, basically meaning we're flowing through this beat and we're tracking the way you saw on the quarter. The CapEx is lumpy. They said that. They didn't guide for any higher CapEx than expected. You're still not getting financing both debt and equity worse than expected. So basically with ORCL, what you have is a company that is integral to AI, where the earnings and cash flow numbers are tracking such that they're getting better and the CapEx and the need for financing numbers are not getting any more dire. And to me, ORCL is worth way over the S&P 500 on a PE.

SPEAKER_1 (2:01)

Right. So it trades with a forward PE of 16 times. Look, we had a guest on Post Earnings who said the results were good and they were good in the areas where you thought there might have been some concern, like the data centers, for instance. But not only are they building them, they're actually making money out of this stuff as well. There were some other bright spots too. But I'm just wondering, Jacob, why is the market not buying this? Because they were saying that it was a head scratcher the next day why this stock sold off.

Jacob Shonenshine (2:33)

So that's a great question and that is the big, I'm glad you said that, because that's something I want to address.

One of the reasons I think ORCL is a buy right now, and why I actually don't think there's that much more downside to go, I mean, maybe it goes to 115 or 120 or whatever, it's really all the stocks on the upside, like you're fine if you buy here, it goes down and then you're at 200 later. The point is, I think that the market actually is buying this story and the stock has gotten a hit in the last few days on some other issues. The first thing that happened was Thursday, September 10th, the post market trading, the first reaction to the print and to the guide, which was on the print, was the stock going up 6%.

I actually know somebody that sold at 165, his cost basis was much lower, so he trimmed a little bit, but you know, fine, so a little bit of resistance at 165, and then it went down a little bit, it was up 4% a little bit after it was initially up 6%, but the market reaction was fine. And then on Friday, you get this news that Larry Ellison is canceling plans to sell millions of shares, and the market's like, oh, well, he was gonna sell millions of shares in the context of a company that needs to finance itself partly through issuing more stock. So, you know, that weighed, and then you get to Monday, and it's down 5%, partly because of that, there was a little bit of news flow on that the last few days, but also on Monday, what happened? Interest rates went up a little bit, rates have moved up a little bit in the last few days, obviously, oil and the whole macro situation. ORCL is particularly vulnerable to higher rates because it does have a high debt load right now, and it's got quite a burdensome capital structure in terms of the amount of debt that it has. So, it's got these, you're getting higher rates, you're getting the Larry Ellison news, but if you actually look at what happened to the stock when the company showed the earnings picture, it went up somewhere in the range of 4 to 6 percent. And when I couple that with the fact that all these issues that we're talking about are getting priced in, it's trading at 16 times earnings, which is ridiculous, and the fact that it's not breaking below 120 and it's in this range, I say go for it.