2 Reasons Red Hat Really Shouldn't Be This Cheap
Shares of Red Hat took a beating when the company's second-quarter report hit the newswires. But CEO Jim Whitehurst isn't worried.
Red Hat beat analyst estimates both on earnings and revenues by growing sales 16% year over year and adjusted earnings by 25%. Analysts and investors ignored all this good news to focus on the billings proxy, a forward-looking measure of upcoming revenues. On that measure -- on which Red Hat doesn't offer any guidance -- the 8% higher number fell short of Wall Street's 12% projections. Red Hat has seen this market reaction before, but the business growth hasn't slowed down like the panic sellers expected.
In a phone call with Fool analyst Anders Bylund, Whitehurst explained two big reasons investors shouldn't focus on the billings proxy. Spoiler alert: Big deals with long-term contracts are changing Red Hat's accounting, and the company is stealing market share from Microsoft and others in several key markets. Oh, and Red Hat shares are starting to look cheap.
What's driving Red Hat's growth?
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The article 2 Reasons Red Hat Really Shouldn't Be This Cheap originally appeared on Fool.com.Fool contributor Anders Bylund has no position in any stocks mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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