Earnings

Critical Comparison: Oracle Corporation (ORCL) vs. Allscripts Healthcare Solutions, Inc. (MDRX)

Oracle Corporation (NYSE:ORCL) shares are up more than 30.53% this year and recently increased 0.28% or $0.14 to settle at $50.19. Allscripts Healthcare Solutions, Inc. (NASDAQ:MDRX), on the other hand, is up 38.64% year to date as of 12/14/2017. It currently trades at $14.15 and has returned 0.11% during the past week.

Oracle Corporation (NYSE:ORCL) and Allscripts Healthcare Solutions, Inc. (NASDAQ:MDRX) are the two most active stocks in the Application Software industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect ORCL to grow earnings at a 8.67% annual rate over the next 5 years. Comparatively, MDRX is expected to grow at a 18.00% annual rate. All else equal, MDRX’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 6.57% for Allscripts Healthcare Solutions, Inc. (MDRX). ORCL’s ROI is 9.50% while MDRX has a ROI of 3.00%. The interpretation is that ORCL’s business generates a higher return on investment than MDRX’s.

Cash Flow 




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, MDRX’s free cash flow per share was +0.27. On a percent-of-sales basis, ORCL’s free cash flow was 13.72% while MDRX converted 3.15% 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 provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. ORCL has a current ratio of 3.60 compared to 1.00 for MDRX. 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 1.28 for MDRX. MDRX is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

ORCL trades at a forward P/E of 15.80, a P/B of 3.73, and a P/S of 5.45, compared to a forward P/E of 18.77, a P/B of 2.31, and a P/S of 1.49 for MDRX. ORCL is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. ORCL is currently priced at a -10.95% to its one-year price target of 56.36. Comparatively, MDRX is -10.67% relative to its price target of 15.84. This suggests that ORCL 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 2.20 for MDRX, which implies that analysts are more bullish on the outlook for MDRX.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. ORCL has a beta of 1.05 and MDRX’s beta is 1.34. ORCL’s shares are therefore the less volatile of the two stocks.

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 1.92 compared to a short interest of 7.06 for MDRX. This implies that the market is currently less bearish on the outlook for ORCL.

Summary

Oracle Corporation (NYSE:ORCL) beats Allscripts Healthcare Solutions, Inc. (NASDAQ:MDRX) on a total of 11 of the 14 factors compared between the two stocks. ORCL 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. ORCL is more undervalued relative to its price target. Finally, ORCL has better sentiment signals based on short interest.

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