Investors Focused on the Long Term Should Continue to Focus on Earnings

There are many things that companies can control. But they can’t control how the market will react to one of their quarterly earnings reports. A company may have great earnings, but see shares sell off on a lower outlook, or because revenues are off.

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  • However, a company isn’t just one quarterly report. And a company that can continue to improve its earnings over time will see its share prices rise, even if that process takes time to play out.

    Database software company Oracle (ORCL) reported better-than-expected earnings, with per-share earnings hitting $1.22, above expectations of $1.20.

    But revenues came in lower than expected, which led to a decline in shares, even as Oracle raised its dividend by 25 percent. The company has been making strong strides towards becoming a recurring-revenue software company, rather than selling one-time software.

    Action to take: shares trade at 15 times forward earnings, a reasonable price for the company’s growth prospects in the years ahead. Plus, the forward dividend gives the stock a 1.6 percent dividend yield at current prices, with room for more growth in time.

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  • For traders, the June $90 calls, last going for about $4.50, can likely deliver mid-double-digit returns in the months ahead as shares rebound off their earnings report drop.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.