Its interesting to compare the investment propositions with these three stocks. Oracle Corporation (NASDAQ:ORCL)’s challenge is to deal with the transition to cloud-based software sales while managing its legacy on premise on license sales. This is why analysts have it on mid-single digit growth for the next few years. However, the stock looks very good value on an EV/EBITDA multiple of just 7.4x and with trailing free cash flow generation equivalent to over 10% of its enterprise value.
International Business Machines Corp. (NYSE:IBM) is slightly more expensive with a multiple of 8.8x and 6.6% for the same metrics. IBM presents a slightly different proposition in that its main focus is on expanding its higher margin businesses and making strategic cost cuts and divestitures where possible. Moreover, I am slightly cautious going into IBM’s results.
Thirdly, it is all very well for TIBCO to talk about ‘value added’ but the fact is that a whole host of tech companies have reported disappointing numbers this year and the enterprise spending environment has weakened. While IBM and Oracle (who recently reported disappointing results) can afford to take pricing on middleware and data analytics because they generate revenue from a number of revenue streams, a ‘price war’ in the industry will disproportionately hit TIBCO.
The bottom line
In conclusion, the results were good relative to what Tibco Software Inc. (NASDAQ:TIBX) has previously reported but it’s still not great. The enterprise sector’s willingness to spend on discretionary IT appears to be weak and TIBCO also advised conservatism over the Government vertical.
Looking at these results in tandem with what Oracle just reported suggests that the tech environment is still weak and investors in IBM and others should not expect too much from its forthcoming results. So far, there is little indication that the tech sector is going to bounce back in this quarter and I think investors need to remain in cautious mode for now.
The article Why Investors Need to Be Cautious About Tech in Q2 originally appeared on Fool.com and is written by Lee Samaha.
Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends Tibco Software. The Motley Fool owns shares of International Business Machines. and Oracle. Lee is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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