I've got to admit that I'm thoroughly surprised by W.D.'s argument. I thought he'd regale you with stories of competitive threats from Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM), SAP (NYSE:SAP), Salesforce.com (NYSE:CRM), and not a few open-source alternatives.

Instead, he decided to pin this argument entirely on valuation. Which means, sadly, you've been left with no choice. There's simply no reasonable way to call Oracle's (NASDAQ:ORCL) shares expensive. Let's start with cash flow.

More earnings for owners
Oracle is generating a lot more owner earnings today than it was before its buying binge. Take a look at the second quarter's data compared with the same period during fiscal 2005:

Metric Q2 2006 Q2 2005
Income after options $789 $807
Depreciation $53 $45
Amortization $126 $7
One-time items $0 $0
Capex $34 $58
Owner earnings $934 $801

Data provided by Capital IQ; numbers in millions.

Got that? We're talking about a year-over-year increase of 16.6%. It's significant because it demonstrates how much cash flow has been lifted by the PeopleSoft purchase and other acquisitions.

But let's go further. To be clear, we're starting from the second quarter of fiscal 2006 and looking back 12 months vs. the previous 12 months.

Metric TTM Prior TTM
Income after operations $2,786 $2,858
Depreciation $227 $187
Amortization $452 $31
One-time items $197 $173
Capex $182 $178
Owner earnings $3,480 $3,071

Data provided by Capital IQ; numbers in millions.

Though not as good as the quarter-to-quarter comparison above, a 13.3% hike is nothing to be ashamed of. And don't misunderstand me: I'm not saying that Oracle could have generated all this growth on its own. It couldn't have. It needed the acquisitions. But W.D.'s argument is that Oracle's buys were expensive and meaningless. These figures prove otherwise.

Correcting the record
Now let's move on to W.D.'s earnings analysis. It's dead wrong. And not just, you know, dead. I'm talking roadkill-on-an-Arizona-highway-in-August dead. Here are the figures taken from Oracle's annual filings with the Securities and Exchange Commission:

Metric 2005 2004 2003 2002 2001
Net income $2,751 $2,478 $1,977 $1,764 $1,979
EPS $0.52 $0.46 $0.36 $0.31 $0.34

Net income numbers in millions. All figures adjusted to account for the impact of expensing options.

Not bad, right? Not at all. And as for the most recent quarter's results, the Street adjusted net income expectations to reflect the impact of acquisitions. Oracle met the challenge with earnings of $0.19, in line with projections.

Guess who's joining the party?
That's an impressive performance, to be sure. And it may help explain why CEO Larry Ellison recently exercised options to buy 6.3 million shares, but then didn't sell any of them. This is highly unusual for any executive, let alone Ellison. He usually immediately sells shares acquired in this manner to raise funds, as community member TMF zoningfool reports here.

He must think the shares are on sale. At 14 times next year's EPS and 16 times 2006 owner earnings, I can see why. Indeed, those aren't so-called Diamond Jim multiples, W.D. Nope, there's a different word for it: Cheap.

Wait! You're not done. This is just a quarter of the Duel! Don't miss the Bull and Bear opening arguments and the Bear rebuttal. Even when you're done, you're still not done. You can vote and let us know who you think won this Duel.

Microsoft is a Motley Fool Inside Value selection. For more expert advice on undervalued stocks, click here.

Fool contributor Tim Beyers owns shares of Oracle. Duh. You can find out what else is in his portfolio by checking Tim's Fool profile . The Motley Fool has an ironclad disclosure policy.