Oracle stock price continued its downtrend this year, moving to its lowest level since June last year. It has crashed by nearly 50% from its highest level in October last year, with its market capitalization falling from $935 billion to the current $511 billion. This article explores why it has more downside to go ahead of its earnings.
Oracle stock technical analysis points to more downside
The daily timeframe chart shows that the ORCL stock peaked at $345 in September last year when it published its strong financial results.
It has been in a freefall since then and has now plunged to $176. Technicals suggest that the stock has more downside as it has formed a death cross pattern, which happens when the 50-day and 200-day Exponential Moving Averages (EMA) cross each other.
The stock has moved slightly below the key support level at $177, invalidating the double-bottom pattern whose neckline is at $207. It has dropped below the 61.8% Fibonacci Retracement level.
The Supertrend indicator has turned red, a sign that bears remain in control. Also, the Relative Strength Index (RSI) and the MACD indicators have continued falling in the past few weeks.
Therefore, the most likely scenario is where the stock continues falling, with the next key target being at $166, the 78.60% Fibonacci Retracement level.
This target is about 7.6% below the current level. A drop below this level will point to more downside, potentially to last year’s low of $117, down by 34% from the current level.
Why Oracle shares have plunged
Oracle, one of the biggest companies in the United States, has come under pressure in the past few months as investors question its large backlog and its elevated debt and negative cash flow.
As a result, the consensus price target for the stock has dropped from $322 three months ago to the current $303, representing a 70% upside from the current level.
The most recent results showed that Oracle’s business continued growing in the last quarter as it became a major supplier in the artificial intelligence industry. Its remaining performance obligations (RPO) jumped by 438% YoY to $523 billion, the highest one in the industry.
While this RPO is a big one, investors are concerned since most of it comes from OpenAI as part of the Stargate project. It is estimated that OpenAI accounts for about $300 billion of this order, a notable thing since it is still a highly unprofitable company. It is also entangled in similar deals worth over $1 trillion.
Oracle’s results showed that its revenue rose by 14% to $16.1 billion, while its earnings per share jumped by 91% to $2.1. Most of its growth came from its cloud infrastructure revenue, which rose by 68% to $4.1 billion, while the Fusion Cloud rose by 18%.
At the same time, the company’s debt continued rising, with the total debt rising by over $100 bilion. Therefore, investors are concerned about how the company will cover the upcoming maturities.
Data compiled by Yahoo Finance shows that the revenue will come in at $16.9 billion, up by 20% YoY, while its annual revenue will grow by 16% to $66 billion. This revenue will then jump to $86 billion in the next financial year.
On the positive side, the ongoing Oracle stock crash has made it highly undervalued, with the forward price-to-earnings ratio moving to 2, lower than the sector median of 24. Therefore, the most likely scenario is where it continues falling in the near term and then rebounds later this year as investors buy the dip.
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