Oracle Corporation (NYSE:ORCL) shares are up more than 26.42% this year and recently increased 0.79% or $0.38 to settle at $48.61. Box, Inc. (NYSE:BOX), on the other hand, is up 45.82% year to date as of 10/13/2017. It currently trades at $20.21 and has returned 5.10% during the past week.
Oracle Corporation (NYSE:ORCL) and Box, Inc. (NYSE:BOX) are the two most active stocks in the Application Software industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect ORCL to grow earnings at a 8.79% annual rate over the next 5 years. Comparatively, BOX is expected to grow at a -0.41% annual rate. All else equal, ORCL’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. Oracle Corporation (ORCL) has an EBITDA margin of 42.26%. This suggests that ORCL underlying business is more profitable ORCL’s ROI is 9.50% while BOX has a ROI of -101.00%. The interpretation is that ORCL’s business generates a higher return on investment than BOX’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. ORCL’s free cash flow (“FCF”) per share for the trailing twelve months was +1.24. Comparatively, BOX’s free cash flow per share was -0.08. On a percent-of-sales basis, ORCL’s free cash flow was 13.72% while BOX converted -0% of its revenues into cash flow. This means that, for a given level of sales, ORCL is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. ORCL has a current ratio of 3.60 compared to 1.00 for BOX. This means that ORCL can more easily cover its most immediate liabilities over the next twelve months. ORCL’s debt-to-equity ratio is 0.94 versus a D/E of 1.99 for BOX. BOX is therefore the more solvent of the two companies, and has lower financial risk.
ORCL trades at a forward P/E of 15.26, a P/B of 3.61, and a P/S of 5.25, compared to a P/B of 63.16, and a P/S of 5.69 for BOX. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. ORCL is currently priced at a -13.92% to its one-year price target of 56.47. Comparatively, BOX is -17.04% relative to its price target of 24.36. This suggests that BOX is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.00 for ORCL and 1.80 for BOX, which implies that analysts are more bullish on the outlook for ORCL.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.ORCL has a short ratio of 1.91 compared to a short interest of 3.59 for BOX. This implies that the market is currently less bearish on the outlook for ORCL.
Oracle Corporation (NYSE:ORCL) beats Box, Inc. (NYSE:BOX) on a total of 10 of the 14 factors compared between the two stocks. ORCL is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, ORCL is the cheaper of the two stocks on book value and sales basis, Finally, ORCL has better sentiment signals based on short interest.