Why Red Hat Shares Popped

Why Red Hat Shares Popped

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 Red Hat jumped nearly 15% Friday after the company posted better-than-expected earnings results and forward guidance.

So what: Quarterly revenue rose 15% year over year to $397 million, including a 17% gain in subscription revenue to $343 million. This translated to non-generally accepted accounting principles net income of $81 million, or a 45% increase to $0.42 per diluted share. Analysts expected adjusted earnings of just $0.35 per share on sales of $383.13 million.

Better yet, Red Hat also increased its full-year fiscal 2014 guidance, calling for revenue in the range of $1.531 billion-$1.534 billion, with non-GAAP earnings per share of $1.46-$1.48. Analysts, on average, were modeling full-year fiscal 2014 earnings of $1.38 per share on sales of $1.52 billion.

Now what: I think investors are right to be excited considering this was a solid quarter built largely on the strength of Red Hat's core Enterprise Linux and JBoss Middleware offerings. As a result, and even with shares trading at a lofty 35 times next year's estimated earnings, it looks like Red Hat stock could still prove to be a bargain for patient long-term investors.

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Originally published