Tech storyline No. 3: The king of open source Finally, in the winner's column today we have Red Hat (NYSE: RHT ) . The company reported sales of $297 million, which was a bit ahead of analyst expectations, and also posted full-year guidance that once again was slightly ahead of Wall Street's targets. So a slight beat last quarter and a slightly better outlook -- good enough for a move of a couple of percentage points, right?
Wrong. The company spread its swings and soared 19.5% today! I think Red Hat's a fine company and is executing well, but I have to admit I was left scratching my head at the reaction to Red Hat's earnings. While the company seems ideally positioned for many IT trends across the next decade, its P/E of about 84 gives me extreme pause. Sure, its continued growth and accounting for sales mean that cash flow far outstrips earnings, but this is still an extremely richly priced stock. Even after its own recent run-up, I'd be more inclined to look at VMware as a high-growth alternative in the space.
Well "put"(pun intended) .....it is a really good company but fundamentals matter for stocks and the 20% POP in the price is over done.
Of course investors who are ( and have been ) comfortable holding this stock for many many years ....they can sit by and watch as a consolidation occurs.... while the companies business and earnings "catch up" to it's valuation ....at this point that could take quite some time !
Wall St does not and will not treat even a tech stock kindly with a P/E of 85+