Most observers will probably conclude that tech giant Oracle (ORCL) is heavily discounted, and for understandable reasons. Basically, the company positions itself as one of the most important players in artificial intelligence. Quantitatively, ORCL stock currently trades at less than 25 times trailing earnings, well below the 52 times multiple seen in August 2025.
Still, such observations are quite ordinal; That is, the low price-earnings (PE) ratio is labeled as such relative to a ratio that was higher at some point in the past. My concern with ordinal analyzes is that the comparison of valuations assumes a premise that may or may not be justified. In this case, ORCL stock is perceived as a discount due to a price indicator.
But here’s the problem. Price is not necessarily an effective mechanism for judging the value of publicly traded stocks. This statement may seem almost blasphemous within financial circles, but there is clear logic behind the statement.
One of the most important elements within market valuation is that tradable securities (with rare exceptions, such as over-the-counter tickers that are rarely traded) do not have a fixed utility. As such, comparing current prices to historical prices is an unreliable mechanism for finding value.
Consider the example of a department store with discount prices. Usually, some products end up collecting dust in major retail stores due to various reasons. Maybe they didn’t match consumer tastes or maybe the manufacturers made too many units. Whatever the case, it’s better to get rid of excess inventory with discount specialists at a reduced price than to throw the products away entirely.
Obviously, the discount retailers’ business model works because the underlying profit is fixed. A T-shirt covers the upper part of the body, a frying pan cooks the food. Just because these items aren’t fashionable doesn’t mean they don’t work. So if you can get these fixed utility items at, say, 30% off, it’s a legitimately good deal.
However, the same logic cannot automatically be applied to ORCL shares or any other tradable security; the utility is not fixed. On the other hand, utility (which in the case of stocks is analogous to the future expectation of its trajectory) changes constantly. In other words, if we are to apply the principles of fundamental analysis in evaluating value, we must study value in relation to the underlying state.
