Whats the P/e for last 4 quarters I get .62 a share in earnings (.14,.15,.16,.17) and the current price say 19.50. So 19.5/.62= 31.45 p/e with a growth rate of 29.5% for year 08 on revenues. Thats a price to earnings growth value (peg) of 1.07. First those Yahoo numbers are bogus and second this company is cheap. Cash on the books, a stock buyback and 30% growth cheap in the sweet spot of this next tech wave. Those are the fundamentals of a coiled spring now we just need the technicals to start coming into line. Bounce off the 20dma and break of the 50 seem like the obvious near term technicals to watch and some declining tops at the 50 level too so lets see if fundamentals can lead the technicals and get a little momentum going. Not laughing, just my opinion. Have a good one all.
I think the rest of the street should have a pretty good picture on software valuations as SAP bought BOBJ a 20% grower for 30 times full year earnings and now Oracle just bid for BEAS again a 15-20% (generous) grower selling for 30 times full year earnings. 1.5 times growth seems like the going baseline value for software companies which values RHT in the low 30's. So a 45 p/e (30% growth * 1.5) on full year estimates. Thats a baseline as the higher growth rate should merit a premium.
Cognos and IBM another 12-15% grower this time selling for close to 30 times fy07 estimates. Industry cash just keeps ratcheting up the valuations for the software sector now something like 1.75 is the going rate for PEG. Fair value for the RHT is up around 40 now.
Hmm downgrade the sector to start picking up positions by the big firms today with the msft and oracle downgrades or is that just because RHT will be beating both their clocks in a years time. Either way interesting very interesting goings on.
dante - I comprehend the basis for valuation. What is the tipping point for the market to accept this? For BOBJ and BEAS, the unusual event is a takeover/purchase bid. If RHT does not have this event, how will Wall St but into the company's value when stocks with exuberant valuations (ie VMW) are still being gobbled?
Good point on the PE. I have not paid attention to P/E of subscription companies like this and CRM. For the fiscal year ending FY08, PE at $20 is 27.78 and growth at 33.3% (.72/.54). PEG = 0.834.
How come no one is buying? Are they waiting for the price to go to $24 (PEG of 1) before they jump in?
Major competitor Valuations (based on fiscal 08)
Earnings PE Peg
Oracle (.37,.22,.27e,.29e)1.15 19.57 19.6/17.8e=1.10
Microsoft (.51,.39,.39e,.44e)1.73 17.05 17.1/12.1e=1.41
SAP(fy07) (.34,.50,.46e,.86e)2.16 26.62 26.6/20.4e=1.30
Novell (.01,.05,.05,.04e).15 50 50/3.2e(08)=15.6
Citrix (.32,.38,.39e,.45e)1.53 26.47 26.5/19.5e=1.36
VMware (.13,.16,.16e,.19e).64 138.28 138.3/44.7e=3.09
Salesforce(.08,.03,.02e,.04e).17 302.94 302.9/48.1e=6.29
I could also throw in symantec and sun in there and chose to add salesforce since like all proprietary software companies there will be open source threats that red hat will be asked to service. Beauty of linux model service the code not specific software. Anyway its clear that for Red Hats growth its cheap at a less than 1 peg. Even compared to its slow growth proprietary peers that have to compete with the laws of big numbers, and extremely cheap compared to its 30%+ growth peers. Here's an article on other open source business apps that provide further reasons to watch linux's growth prospects.