From a valuation point of view, I haven't been the Red Hat's biggest fan -- not when the stock carries of price-to-earnings ratio of 67, which is five times more than both Oracle (ORCL) and Microsoft (MSFT).
I don't mind disclosing that, as a value investor, I've always resented Red Hat for its costly premium. You can save your "keep emotions out of investing" emails -- I'm over it now. I've come to accept there's not much a company can do when the Street has already made up its mind that it's going to love the stock no matter what, especially companies having anything to do with the Cloud and software virtualization.
To that end, while I won't make an all-out plea for investors to jump in the stock today, after a solid June quarter by Red Hat that included new strategic growth initiatives such as Open Shift and Open Stack, Red Hat may have uncovered new ways to justify investors' trust. As with "Big Data" and other recent IT buzzwords, Open Stack, which has attracted interest from Microsoft, Hewlett-Packard (HPQ) and VMware (VMW), has begun to generate considerable momentum.What's more, unlike Oracle, which had an absolutely brutal June quarter and a less-than-joyful first quarter Wednesday, Red Hat's management continues to do an excellent job of balancing expectations with actual performance. So, as with IBM (IBM) and Oracle, which have shown eroding growth trends, growth has never been an issue for Red Hat. With revenue climbing more than 15% in the June quarter, I've had no choice but to tip my cap to the company's management, especially since Oracle produced growth of less than 1%. Unlike Oracle and, to some extent, IBM, Red Hat continues to outperform in its subscription business, which grew 16% year over year and 4% sequentially. Not to mention, the company beat earnings-per-share estimates by 1 cent.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV