Red Hat, Inc. (RHT) offers open source software solutions for a vast range of technologies including operating systems, virtualization, management, cloud, mobile, and storage. The company offers infrastructure-related solutions through its Red Hat Enterprise Linux, Red Hat Satellite, and Red Hat Enterprise Virtualization.
It is headquartered in Raleigh, North Carolina.
Red Hat has performed extraordinarily in recent years with earnings growth of 22% per year over the last three years and sales growth of 18% per year over the same period.
The most recent quarterly report showed EPS growth of 24% and sales growth of 20%.
Analysts expect earnings growth of 16.9% per year for the next five years.
The company boasts a return on equity of 39.9%, a profit margin of 24.7%, and an operating margin of 16.25%.
Red Hat dropped sharply last month after its earnings report. The company beat on EPS estimates and revenue estimates, and it announced a $1 billion stock buyback. The problem was the guidance disappointed and the expectations were just too high heading in to the report. The decline stopped at the 52-week moving average and now the stock has stabilized and bounced back a little. The stochastic readings dropped in to oversold territory and have now made a bullish crossover. The pattern looks similar to what we saw at the beginning of 2017 and after that stretch the stock gained 100% in just over a year.
Suggested strategy: Buy RHT with a maximum entry price of $150. I would set a target of at least $225 over the next 12 months (for a potential return of 50%-plus from current prices). I would suggest a stop loss at the $130 level.
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