Once considered a laggard company in the world of technology, Oracle (NYSE:ORCL) stock has made a comeback as one of the best-performing tech names of 2021.

It was the original champion of database technology. Now Oracle is becoming an emerging force in both backend infrastructure technologies and software-as-a-service (SaaS). In other words, management is proving that what is considered outdated can quickly become hot again in the tech stock space.

Investors have not been shy to bid ORCL stock up this year. Growth expectations mainly revolve around the cloud computing business. As a result, ORCL stock has soared by 56% over the last 12 months.

And the rally accelerated after Oracle recently released its fourth-quarter and FY21 results. As a result, the shares hit a record high of $91.20. It currently trades around $87, up 35% in 2021. The current price supports a dividend yield of about 1.3%.

Thanks to its success in the cloud, Oracle has outperformed many tech stocks currently underperforming the broader market this year. However, in the short run, ORCL stock is likely to be volatile and could see profit-taking

Yet, long-term investors looking to generate lucrative returns in the rest of 2021 and beyond may consider buying the dips. Here’s why.

How Recent Earnings Came

Founded in 1977, Oracle is well-known for pioneering the first commercial SQL-based relational database management system. Now, with 430,000 customers in 175 countries, the tech giant provides database technology and enterprise resource planning (ERP) software to businesses and global governments. Its market capitalization  stands at $246 billion.

Oracle released fourth-quarter results in mid-June. Total revenue increased 8% year-over-year to $11.2 billion. Non-GAAP net income went up buy 20% to $4.5 billion, and non-GAAP earnings per share soared 29% to $1.54.

In fiscal 2021, Oracle generated almost $13.8 billion in free cash flow. As a result, management invested heavily in stock buybacks. Excluding the $3 billion spent on dividends, it bought back 329 million shares at a cost of $21 billion in the past year. Cash and equivalents ended the fiscal year at $30.1 billion.

On the results, CEO Safra Catz remarked, “Our Q4 performance was absolutely outstanding with total revenue beating guidance by nearly $200 million, and non-GAAP earnings per share beating guidance by $0.24.”

Cloud apps saw 20% to 30% growth. Yet, it has not led to a significant increase in overall revenue for the fiscal year 2021. Oracle’s revenue of $40.5 billion grew only by 4% compared to the previous year.

ORCL stock is currently trading at 19x forward price-earnings multiple and 6.5x current sales. The 12-month price target range for Oracle stock extends from $60 to $115. The median estimate of $80 would mean a decline of about 9% from the current levels. Therefore, short-term investors could see the shares come under pressure.

Long-Term Tailwinds For Oracle Stock

Despite the potential short-term volatility, there are many reasons for investors to consider ORCL stock. It has a broad portfolio addressing different spectrums of enterprise technology. Revenues have been gaining momentum after the company has shifted resources to the cloud space.

Management regards the cloud in terms of platform, application, and infrastructure layers. Put another way, Oracle offers a complete package that may lead to a even a stronger competitive advantage in the long term.

The company has recently announced plans to increase spending on data centers. It will double capital expenditures to almost $4 billion. Investors are hoping this heavy spending will boost the cloud businesses.

Market research firm Research and Markets predicts cloud spending could grow at a compound annual growth rate of 17.5% through 2025. Although this implies a massive opportunity, Oracle currently has a minor share of the broad cloud market.

The company still trails behind the market leader Amazon (NASDAQ:AMZN) as well as other  competitors Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Recent quarterly metrics from these tech giants have shown the importance of cloud applications and services for revenues.

If management were to continue its recent success, it would be possible to see Oracle grow its market cap to rapidly in the coming quarters as well.

The Bottom Line on ORCL Stock

Oracle’s revenue mix now focuses more on subscriptions, especially in the cloud space. Investors would like to see the bottom line grow in the coming quarters. However, it might still be several quarters before management’s efforts translate into higher earnings.

Although I remain bullish on ORCL stock for the long run, I expect some profit-taking in the coming weeks Interested investors could regard any drop toward the $80 to $82 level as a better entry point.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.