Most observers will likely jump to the conclusion that tech giant Oracle (ORCL) is heavily discounted and for understandable reasons. Fundamentally, the company ranks as one of the most important players in artificial intelligence. Quantitatively, ORCL stock currently trades at under 25 times trailing earnings, well below the 52x multiple seen in August 2025.
Still, such observations are rather 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 analyses is that the valuation comparison assumes a premise that may or may not be justified. In this case, ORCL stock is perceived to be a discount due to a price indicator.
Here’s the issue, though. Price is not necessarily an effective mechanism to judge value in publicly traded equities. This statement may sound almost blasphemous within financial circles but there’s a clear logic behind the claim.
One of the most important elements within market valuation is that tradable securities (outside of rare exceptions like thinly traded over-the-counter tickers) do not have fixed utility. As such, comparing current price points relative to historical is an unreliable mechanism to find value.
Consider the example of an off-price department store. Typically, some products end up collecting dust in mainline retail stores due to a variety of reasons. Maybe they didn’t resonate with consumers’ tastes or perhaps the manufacturers made too many units. Whatever the case, it’s better to dump the excess inventory with discount specialists at a reduced rate than to trash the products altogether.
Obviously, the business model of off-price retailers works because the underlying utility is fixed. A T-shirt covers the upper body, a frying pan cooks food. Just because these items aren’t fashionably desirable doesn’t mean they don’t work. So, if you can get these fixed-utility items at, say, a 30% discount, that’s a legitimately good deal.
However, the same logic cannot be applied automatically to ORCL stock or any other tradable security; the utility isn’t fixed. Instead, the utility — which in the case of stocks is analogous to the forward expectation of their trajectory — constantly shifts. In other words, if we are to apply the principles of fundamental analysis in assessing value, we must study value relative to the underlying state.
