So, assuming Red Hat doesn't immediately fix its "large deal arrangements" deficiency, how much longer are investors willing to wait for management to harvest the sort of premium presumed by its stock price? While I'm not ready to say Red Hat is suddenly losing its way, management, by virtue of its own guidance, suggests that growth is expected to slow.
For the December quarter, revenue is expected in the range of $381 million and $384 million, which implies year-over-year growth of (only) 13% and 2% sequentially, falling short of Street estimates. Investors must reflect on what these numbers and the soft guidance might actually mean.
Again, this is where Red Hat's valuation, which, even after the 12% decline, doesn't leave much margin for error. That the stock is still trading at 30 times next year's fiscal estimates is discounting the fact that the virtualization/cloud industry is always in transition. Today's leader can easily be tomorrow's has-been. And Red Hat, which is now being attacked from all angles, not only must prove which path it's on, but that it deserves -- what still remains -- an expensive valuation.
At the time of publication, the author held no position in any of the stocks mentioned.Follow @saintssense This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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