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Wednesday, 24 March 2004
March 24, 2004 Red Hat (RHAT)
Hello Friends! Thanks so much for stopping by! It has been a couple of days since I posted and I was both very busy as well as frankly not finding much to post on these dismal trading days. Please remember, like always, to do your own due diligence on all of these stocks and consult with your investment advisors before making any decisions based on this website to determine whether investments discussed are appropriate and timely for you!

I was scanning the lists of greatest gainers this morning and came across Red Hat (RHAT). As I write, RHAT is trading at $21.44, up $2.03 or 10.46%. I do not own any shares or have options or futures on this stock. According to the money.cnn.com "snapshot", Red Hat's "...principal activity is to provide open source solutions for the information technology infrastructure. The Group offers a common platform for developing, deploying and managing open source software across Internet infrastructure and devices that connect to the Internet." In other words, LINUX.

On March 23, 2004, RHAT reported 4th quarter 2003 results for the quarter ended February 29, 2004. Revenue for the quarter grew 43% to $37 million from $25.9 million. Net income for the quarter was $5 million compared with 'break-even' results the year earlier.

Looking at "5-Yr Restated" financials on Morningstar.com, we can see that revenue growth while not entirely consistent followed a strong growth trend with revenue increasing from $58.6 million in 1999 to $115 million in the trailing twelve months.

This company has been losing money since 2001, when first public results reported on Morningstar, losing $$(.53)/share gradually improving to a loss of only $(.03)/share in 2003 and turning profitable at $.05/share int he trailing twelve months.

Free cash flow has also been improving recently with a negative $(51) million in 2001, improving to $(14) million in 2002, $(8) million in 2003, and a positive $23 million in the trailing twelve months.

The balance sheet, as reported on Morningstar.com, looks excellent with $97.6 million in cash, more than enough to cover the $71.6 million in current liabilities and the $6 million in long-term debt combined. In addition, RHAT is reported to have $40.9 million in other current assets.

What about valuation issues? If we take a look at "Key Statistics" on Yahoo.com with a Market Cap of $3.77 billion. Since the company is JUST turning profitable the p/e is steep at 107.45. However, using the PEG as a parameter, we still see a PEG of 3.08, also suggesting the price is at a premium, and the price/sales, which when a stock is cheap is closer to 1.0, is actually at 29.58. This stock is no bargain!

Yahoo reports 175.2 million shares outstanding with 161.2 million that float. Currently there are 10.03 million shares out short representing 2.174 trading days of volume or 6.22% of the float. No dividend is paid. And the last stock split was in January, 2000.

Taking a brief look at "technicals" with a chart from Stockcharts.com, we can see that RHAT broke through a resistance level in late 2003 at about $16 and has been heading higher since! Technically, the stock is trading higher. I do not wish to analyze this further but defer to others who might have opinions on the graph!

What do I think? The company is doing just fine. They are growing their revenue, and maybe reacting to the Microsoft problem with the EU (?) in a bullish move to the upside today. The company just is selling at a premium to its intrinsic valuation imho. I like the stock but am cautious as I do not want to be the last one "to the party."

Thanks so much for stopping by! If you have any comments, questions, or words of encouragement, please feel free to email me at bobsadviceforstocks@lycos.com

Bob


Posted by bobsadviceforstocks at 10:00 AM CST | Post Comment | Permalink

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