With Wall Street's obsession with quarter-to-quarter growth, to the casual observer it only mattered that Oracle missed estimates for its fiscal fourth-quarter earnings results. But for astute investors who have been waiting for a better entry point, get in now!
If you're looking for value, ignore the noise and focus on where Oracle is heading. Others might focus on Oracle's lack of revenue growth but value still remains in the company's position in hardware, middleware, applications and cloud offerings. All told, these shares are an easy bet to reach $45 in the next 12 months. They are currently at $40.60.
Revenue growth will return on improved cloud initiatives. In the meantime, Oracle remains a strong cash-return story -- one that pays a respectable 1.1% dividend yield. Combined with the $45 target, there is potentially 13% upside for smart investors willing to capitalize on others' mistakes.
It's true that rivals Salesforce.com (CRM) and Workday (WDAY) have ushered in a new generation of cloud-based business application software. These services are taking away customers' need for services that brought Oracle to prominence.
But it's not as if CEO Larry Ellison, who's executed dozens of M&A deals over the past two years, has stood by idle.
With recent deals for Responsys (MKTG) and cloud marketing technology specialist BlueKai, Oracle continues to make its own path in enterprise software and cloud-based services. Given the improved IT spending environment, it's only a matter of time before Oracle's growth takes a turn for the better.
What's more, Ellison has been clear about shifting Oracle's focus to newer parts of the company that are seeing stronger growth. Despite the disappointing results, it was encouraging Oracle opted to shift its revenue breakout to highlight its focus on cloud services.
Unlike previous quarters, investors will now get a more transparent view of how Oracle's cloud business is performing relative to/apart from its software licenses and its services business. Applications like software-as-a-service (SaaS) and platform-as-a-service (PaaS) will now be known as Cloud SaaS and PaaS. No longer will they be bundled under New Software Licenses and Cloud Software Subsriptions.
This means investors will be able to better assess Oracle's growth performance in the cloud relative to Salesforce and Workday. What's more, that infrastructure-as-a service (IaaS) will have its own line item suggest that Oracle expects to compete head-on with IBM (IBM), which has made it known it wants to become a PaaS power.
From my vantage point, I don't believe Ellison would set himself up for embarrassment if he didn't believe Oracle would put up the numbers to warrant the sudden change on disclosure.
In that regard, Oracle's guidance, which now includes explicit outlooks for SaaS/PaaS and IaaS, should erase doubts about Oracle's commitment towards the cloud. When you combine this with the fact that Oracle has purchased 2% of its shares outstanding in six of the past nine quarters, selling the stock based on the results of one quarter makes absolutely no sense.
At the time of publication, the author held no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.