NEW YORK (TheStreet) -- Despite Wall Street's quarter-to-quarter obsession with growth, it is easy to understand why Oracle's (ORCL) shares were punished on CEO and earnings news. So with shares down almost 10% over the past three months, now's the best time to buy. There are plenty of reasons to remain positive about Oracle's prospects.

While talking heads point to Oracle's weak top line, the company is unmatched when it comes to its capabilities in database and analytics, middleware, hardware and applications.

Despite its recent downbeat results, including 2.7% revenue growth that missed estimates of $8.78 billion, the company continues to deliver across cloud business lines. Cloud Software-as-a-Service (SaaS) surged 33%. Likewise, cloud infrastructure revenue was up more than 26%. 

What's more, the shares still have a high analyst target of $49, a 23% upside from current levels. When compared with nimbler rivals such as Salesforce.com (CRM) and Workday (WDAY) , Oracle's revenue growth may seem unimpressive. But growth will return on improved cloud initiatives.

Oracle is on its way to becoming an SaaS consolidator as well as a one-stop enterprise service provider. Just look at the company's software and cloud-based services, including recent deals for Responsys (MKTG) and cloud marketing technology specialist BlueKai.

Despite the weak fiscal second-quarter forecast, Oracle just delivered a 20-basis point jump in operating margin. That was achieved despite the 7% jump in research-and-development costs. There was also a 10% decline in hardware product and services support -- a business Oracle is working to shed -- as the company focuses on cost management. This means, even during periods of weak revenue growth, Oracle is working to increase its bottom line. And the company can still keep up by not having to sacrifice innovation and R&D spending.

 

According to my model shown above, Oracle's valuation is now trading at just 11.6 times forward earnings estimates of $3.40 per share. That is 5 cents higher than current analysts' average estimate of $3.35, according to Yahoo! Finance. I'm projecting for 5% year-over-year revenue growth vs. estimates of 4.5%.

Shares are up just 5% on the year to date, trailing the 8% gain in the S&P 500. Since founder Larry Ellison announced plans to step down as CEO and become chairman and chief technology officer, share took a hit. The stock was trading at $39.35, down  45 cent, off -1.13% around midday Monday.

Although revenue guidance, which calls for flat growth to a 4% year-over-year jump, is unimpressive -- analysts had estimated 4.8% to 5% revenue growth -- that doesn't paint the whole picture. Oracle is one of the best cash-return stories on the market. The company just announced an additional $13 billion buyback. It has been one of the more active stock repurchasers and dividend payers in tech.

This isn't going to be a Microsoft (MSFT) -type resurgence -- not like following the departure of Steve Ballmer. Microsoft shares are up 51% since his exit. Still, Oracle's recent 4% decline after the Ellison announcement and first-quarter earnings miss is an overreaction. Astute investors looking for a combination of value and growth potential are presented with an optimal buying opportunity.

 

 

At the time of publication, the author held no position in any of the stocks mentioned.

Follow @Richard_WSPB

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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