Trade-Ideas LLC identified

Red Hat

(

RHT

) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Red Hat as such a stock due to the following factors:

  • RHT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $98.9 million.
  • RHT has traded 554,256 shares today.
  • RHT is trading at 2.26 times the normal volume for the stock at this time of day.
  • RHT crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on RHT:

TheStreet Recommends

Red Hat, Inc. provides open source software solutions to enterprise customers worldwide. It develops and offers operating system, virtualization, middleware, storage, and cloud technologies. RHT has a PE ratio of 69. Currently there are 14 analysts that rate Red Hat a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Red Hat has been 1.2 million shares per day over the past 30 days. Red Hat has a market cap of $13.1 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.01 and a short float of 3% with 3.39 days to cover. Shares are up 2.8% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Red Hat as a

buy

. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, notable return on equity and good cash flow from operations. We feel its strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 10.7%. Since the same quarter one year prior, revenues rose by 12.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • RED HAT INC has improved earnings per share by 30.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, RED HAT INC increased its bottom line by earning $0.97 versus $0.93 in the prior year. This year, the market expects an improvement in earnings ($1.83 versus $0.97).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Software industry. The net income increased by 27.4% when compared to the same quarter one year prior, rising from $37.75 million to $48.09 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Software industry and the overall market, RED HAT INC's return on equity exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has increased to $208.76 million or 26.76% when compared to the same quarter last year. In addition, RED HAT INC has also vastly surpassed the industry average cash flow growth rate of -31.39%.

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