Which Infrastructure Software Stock is a Better Buy?

With the rising deployment of enterprise software and services across various industries, prominent companies in this space, Oracle (ORCL) and Adobe (ADBE), should witness increasing demand for their solutions. But which of these two stocks is a better buy now? Read more to find out.


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Oracle Corporation (ORCL) provides products and services that address enterprise information technology environments worldwide. It markets and sells its cloud, license, hardware support, and services offerings directly to businesses. On the other hand, Adobe Inc. (ADBE) operates as a diversified software company worldwide. It operates through three segments: Digital Media; Digital Experience; and Publishing and Advertising.

With increasing focus on customer-service-driven strategies and normalization of the work-from-home model, the demand for business software and services has increased over the past year. Moreover, the rapid increase in the volume of enterprise data and the growing automation of business processes across several end-use industries are expected to drive the growth of the software infrastructure industry. According to Grand View Research, the global business software and services market is expected to grow at a CAGR of 11.3% by 2028. Therefore, both ORCL and ADBE should benefit.

ORCL has gained 17% over the past year, while ADBE has returned 2.4%. But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On February 14, 2022, ORCL announced new logistics management capabilities within Oracle Fusion Cloud Supply Chain & Manufacturing. The updates to Oracle Fusion Cloud Transportation Management and Oracle Fusion Cloud Global Trade Management can help organizations reduce costs and risk, improve customer experience, and become more adaptable to business disruptions, thereby increasing its demand.

Click here to check out our Software Industry Report for 2022

On December 16, 2021, Shantanu Narayen, chairman and CEO of ADBE, said, “With an estimated $205 billion addressable market, we are well-positioned for significant growth in the years ahead with our industry-leading products and platforms.”

Recent Financial Results

ORCL’s revenue increased 18% year-over-year to $3.53 billion for the fiscal second quarter ended November 30, 2021. The company’s non-GAAP operating income grew 6% year-over-year to $4.86 billion, while its non-GAAP net income came in at $3.38 billion representing a 4% year-over-year increase. Also, its non-GAAP EPS came in at $1.21, up 14% year-over-year.

ADBE’s revenues increased 20% year-over-year to $4.11 billion for the second fiscal quarter ended December 3, 2021. The company’s non-GAAP operating income grew 20.7% year-over-year to $1.86 billion, while its non-GAAP net income came in at $1.54 billion representing a 12.7% year-over-year increase. Also, its non-GAAP EPS came in at $3.20, up 13.9% year-over-year.

Past and Expected Financial Performance

ORCL’s net income and EPS grew at CAGRs of 38.9% and 55.1%, respectively, over the past three years. Analysts expect ORCL’s revenue to increase 4.6% in the current year and 4.5% next year. The company’s EPS is expected to grow 3.4% in the current year and 8.7% next year. Moreover, its EPS is expected to grow at 9.6% per annum over the next five years.

On the other hand, ADBE’s net income and EPS grew at CAGRs of 23% and 24.4%, respectively, over the past three years. The company’s revenue is expected to increase 13.7% in the current year and 14.9% next year. Its EPS is expected to grow 10.4% in the current year and 18.1% next year. Also, ADBE’s EPS is expected to increase at 15.4% per annum over the next five years.

Profitability

ORCL’s trailing-12-month revenue is 2.62 times what ADBE generates. However, ADBE is also more profitable with a gross profit margin and net income margin of 88.18% and 30.55% compared to ORCL’s 79.96% and 24.79%, respectively.

Furthermore, ADBE’s ROA and ROTC of 14.08% and 19.37% are higher than ORCL’s 9.20% and 13.46%, respectively.

Valuation

In terms of trailing-12-month non-GAAP P/E, ADBE is currently trading at 34.15x, 109.9% higher than ORCL’s 16.27x. Moreover, ADBE’s trailing-12-month EV/EBITDA ratio of 24.91x is 105.9% higher than ORCL’s 12.10x.

So, ORCL is relatively affordable here.

POWR Ratings

ORCL has an overall rating of B, which equates to a Buy in our property POWR Ratings system. On the other hand, ADBE has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

ORCL has a B grade for Value, consistent with its forward non-GAAP P/E of 16.26x, 17% lower than the industry average of 19.60x. However, ADBE has a C grade for Value, in sync with its forward non-GAAP P/E of 33.27x, 69.8% higher than the industry average of 19.60x.

Of the 165 stocks in the Software – Application industry, ORCL is ranked #16. In comparison, ADBE is ranked #39.

Beyond what I’ve stated above, we have also rated the stocks for Quality, Growth, Momentum, Stability, and Sentiment. Click here to view all the ORCL ratings. Also, get all the ADBE ratings here.

The Winner

The increasing scale of operations and rapid cloud migration should drive the software infrastructure market’s growth. While both ORCL and ADBE are expected to gain, it is better to bet on ORCL now because of its lower valuation.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Software – Application industry here.


ADBE shares were trading at $448.86 per share on Friday afternoon, down $10.22 (-2.23%). Year-to-date, ADBE has declined -20.84%, versus a -9.51% rise in the benchmark S&P 500 index during the same period.


About the Author: Nimesh Jaiswal

Nimesh Jaiswal’s fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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