2-Star Stocks Poised to Plunge: Red Hat?

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, open source software specialist Red Hat (NYS: RHT) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Red Hat's business and see what CAPS investors are saying about the stock right now.

Red Hatfacts

Headquarters (founded)Raleigh, N.C. (1993)
Market Cap$11.6 billion
IndustrySystems software
Trailing-12-Month Revenue$1.1 billion
ManagementCEO James Whitehurst (since 2008)
CFO Charles Peters Jr. (since 2004)
Return on Equity (average, past 3 years)9.2%
Cash/Debt$808.3 million / $0
CompetitorsMicrosoft
Novell
Oracle

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 18% of the 742 members who have rated Red Hat believe the stock will underperform the S&P 500 going forward.

A few weeks ago, one of those Fools, All-Star BuffettJunior1, succinctly summed up the bear case for our community:

Red Hat makes money giving away free software. The company has no economic moat, which means increased competition will threaten its impressive growth. Considering the ridiculous valuation on this stock I think some investors will lose a lot of money in the long run.

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At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Microsoft and Oracle. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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