Red Hat Inc. Stock Buy Recommendation Reiterated (RHT)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Red Hat (NYSE: RHT) has been reiterated by TheStreet Ratings as a buy with a ratings score of B . The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

  • EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 1.8%. Since the same quarter one year prior, revenues rose by 18.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • RHT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.28, which illustrates the ability to avoid short-term cash problems.
  • Net operating cash flow has slightly increased to $100.16 million or 3.72% when compared to the same quarter last year. In addition, RED HAT INC has also modestly surpassed the industry average cash flow growth rate of -4.34%.
  • The gross profit margin for RED HAT INC is currently very high, coming in at 89.20%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, RHT's net profit margin of 10.11% significantly trails the industry average.
  • Compared to its closing price of one year ago, RHT's share price has jumped by 26.32%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

Red Hat, Inc. provides open source software solutions to enterprise customers worldwide. The company also offers enterprise-ready open source operating system platforms. Red Hat has a market cap of $10.62 billion and is part of the technology sector and computer software & services industry. The company has a P/E ratio of 74.3, above the S&P 500 P/E ratio of 17.7. Shares are up 3.8% year to date as of the close of trading on Wednesday.

You can view the full Red Hat Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

It's Official: Action Alerts PLUS beats the S&P 500 with Dividends Reinvested! Cramer and Link were up 16.72% in 2012. Were you? See what they are trading for 14-days FREE
null

If you liked this article you might like

Pret A Manger Takeover in the Works; Cisco's M&A Shackles Come Off - ICYMI

John Chambers' Exit From Cisco Could Pave the Way for Big Moves

Jim Cramer on Nordstrom's Plans to Go Private

Cramer: This Rally Isn't Without Meaning

How Microsoft and Other Software Giants Are Growing in a Cloud-Focused World