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.
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- 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.
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