Red Hat (RHT) , the world's largest provider of open-source Linux software solutions, reports fiscal fourth-quarter earnings results after the closing bell Tuesday.
The stock, at around $73, is down 12% for the year to date despite surging 22% from its February low of $59.59. Tthe S&P 500 (SPX) is down around 1%. But in the short term shares have risen 14% over the past 30 days, outperforming the 12% one-month rise in the iShares North American Tech-Software ETF (IGV) .
Does this mean you should buy? Yes, and here's why.
For the quarter that ended February, Red Hat is expected to earn 47 cents per share on revenue of $537.20 million, translating to year-over-year growth of 9% and 15.8%, respectively. For the full year, earnings are projected to climb 16.25% year over year to $1.86 per share, while revenue of $2.05 billion would mark a year-over-year rise of 14.4%.
The cloud is hot and that makes Red Hat hot, too, with a 16% year-over-year increase in subscription revenue and 8% rise in training/services revenue. In its third quarter, Red Hat extended its streak of consecutive earnings beats to 14.
What's more, the Linux specialist saw its third-quarter deferred revenue surge 14% to $1.49 billion -- a growth acceleration of one percentage point from the second quarter. Deferred revenue, especially in the tech software industry, denotes the strength of future sales or pent-up demand. In this case, it suggests Red Hat has established solid pricing power with its customers and likely gaining market share over its competitors as evidenced by the 12% rise in its infrastructure-related business (Linux and virtualization).