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To: KevRupert who started this subject5/20/2001 6:02:56 PM
From: KevRupert  Read Replies (1) of 252
 
Vicks on Buffet/Oracle:

sageonline.com

Question: Would Warren Buffett pick Oracle Corporation [ORCL] at its current price?

If Mr. Buffett feels he can get his arms around the company and successfully predict its future, he would start looking at Oracle at its current value of about $91 billion. But keep in mind what just happened in the sector. The tremendous slowdown in sales, new orders, backlogs and earnings would tell Mr. Buffett that companies such as Oracle are not immune from slowdowns and they are not as predictable as people believe. Mr. Buffett craves predictability and he certainly will not pay a high price-to-earnings ratio (P/E) for a company that proves to be erratic. Going back into 1999 or so, there were analysts that believed that Oracle could increase its earnings at a steady 30 to 35 percent annual rate going forward. Obviously, something has come along to tip over that barrel. If Mr. Buffett believed that Oracle can resume its previous growth trajectory, then he would be inclined to look at a company such as Oracle at current prices of around $16. Analysts are currently expecting that Oracle can increase its earnings at a 25 percent rate in the future. Therefore, if Oracle's stock can trade at its historical average P/E of around 30, then a new investor at $16 can expect a 20 percent to 25 percent annual growth rate in the share over the next 10 years. That is a pretty compelling return but relies entirely upon those growth targets being hit.
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