Why Red Hat Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Linux software company Red Hat (NYS: RHT) surged 13% on Thursday after its quarterly results and outlook topped Wall Street expectations.

So what: Red Hat's adjusted EPS managed to squeak past estimates, but a particularly solid top-line beat -- $297 million versus the consensus of $291 million -- is forcing analysts to raise their growth expectations yet again. In fact, the news boosted the stock to its highest level since March 2000.

Now what: Looking ahead, management now sees 2013 revenue of about $1.35 billion -- slightly higher than Wall Street's view of $1.3 billion -- as the strong demand for Linux isn't expected to slow anytime soon. "The open source technologies which we provide are being selected by more customers every day as they rearchitect the infrastructure of their data centers for greater efficiency, agility and cloud enablement," said CEO Jim Whitehurst. Given Red Hat's red-hot stock and lofty 75-plus P/E, however, much of that growth might already be baked into the price.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. 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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