Oracle (NYSE:ORCL) stock sold off hard after releasing earnings Thursday night. By the time trading was done for the day (and the week) Friday, the stock had fallen 9.3%. But was the news really bad enough to justify the sell-off?

After all, according to Oracle's earnings release:

  • Total revenues for fiscal Q4 grew 2%
  • Operating expenses declined 5%
  • Operating and net profit both increased 12%
  • And, with the share count falling, Oracle transformed this already nice number into a 16% increase in earnings per diluted share -- $0.80

As it turns out, therefore, Oracle actually ended fiscal 2013 with somewhat of a bang. Revenue growth in Q4 matched Oracle's performance for the year. The company made more progress on cost-cutting, delivered superior operating profits growth, and even accelerated its growth (slightly) in earnings per share.

And it gets better. With capital spending held in check, Oracle produced $13.6 billion in positive free cash flow for the fiscal year that just ended. On the one hand, that's not quite as rapid growth as we'd like to see. (FCF was up only 4% over fiscal 2012 levels.) That said, $13.6 billion is still 25% more cash profit than Oracle claimed as "net income" for the year.

As a result, investors who look at Oracle stock today and think to themselves, "Hey, it looks pretty cheap at only 14 times earnings," are really only half right. At barely 10.4 times free cash flow, Oracle is actually pretty astoundingly cheap -- and it gets even cheaper once you back out the company's $13.7 billion in net cash. The enterprise value to free-cash-flow ratio on this one is a bargain basement 9.4.

Risks and opportunity
Are there reasons Oracle is so cheap? Sure there are. Two percent revenue growth doesn't compare awfully well to the 61% growth in revenues we saw at Workday last quarter, to the 28% sales growth at, or even to the 7.5% increase in revs at archrival SAP. But, then again, Oracle stock is 40% cheaper than SAP on a P/E basis, and it's profitable, where Salesforce and Workday currently are not.

Weighed against long-term growth prospects that, according to the analysts, will approach 11% per year over the next five years, and factoring in a now-doubled dividend yield of 1.6%, I'd venture to say that Oracle stock has become one of the better bargains in the software space.