Jim Cramer -- Five Below's Sales, Red Hat's 'Surprise'

The drop in Red Hat (RHT) shares seems inexplicable to some investors. Red hat is down 4.5% on Wednesday despite the company topping earnings per share and revenue estimates and providing better-than-expected guidance

But TheStreet's Jim Cramer, co-manager of the Action Alerts PLUS portfolio, has an idea why. 

Some people believe Red Hat shares trade based on cash flow, Cramer said. But he thinks the stock trades based on billings.

"I hate to count this company out, but that was a surprise to me," Cramer said on CNBC's "Mad Dash" segment about Red Hat's 10.9% billings growth this quarter, down from 14.9% last quarter. That's why the stock is down despite the tech company securing some impressive contracts, he said. 

Cramer turned his attention to Five Below (FIVE) , which is up nearly 4% after beating on revenue and earnings estimates. Gross margins were higher, sales were "good" and spending should moderate, too, he said.

Shares were initially lower in premarket trading before moving higher. Cramer attributed the premarket move to the company's comparable-store sales results of just 3.6%, below expectations of 4%. 

While the miss may seem trivial, Cramer said for a stock price that has climbed so much on the year already, investors want to see better-than-expected comps, not worse. 

"A stock up 21% [on the year, ahead of earnings] has to blow away the comps," Cramer said, adding that companies have "got to shoot the lights out if people take your stock up this much."

 

At the time of publication, Cramer's Action Alerts PLUS had no position in companies mentioned.

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