Can Red Hat Stay Red Hot?

Red Hat (NYSE: RHT  ) is accelerating its business -- but is it a sustainable boost or the last stutter of a dying growth engine? Stay tuned for the answer.

The Linux specialist's sales jumped 18% year-over-year in the fourth quarter by pulling in $196 million in revenue, mostly from renewable service subscription fees -- a segment that grew by 21%. Both the total revenue and the subscription component accelerated at the end of the year, as both growth rates outdistanced their full-year benchmarks by about 3 percentage points.

$23.4 million of that haul trickled down to the bottom line, where $0.12 of GAAP net income per share represented a solid 50% boost over the year-ago period. If you're wondering why Red Hat's stock is trading down today after such an impressive performance report, CEO Jim Whitehurst (yes, the former airline rescuer) believes that investors are looking at all the wrong indicators today. Analysts are wondering why Red Hat's forward guidance came in at or below their own estimates, but the company line is that these guidance figures don't include investment gains that analysts expected to be included, and that's the difference-maker.

Well, whatever. It's a fact that Red Hat's numbers were strong, and the company has a history of underpromising and overdelivering in a manner that reminds me of Apple (Nasdaq: AAPL  ) or Intel (Nasdaq: INTC  ) . Set the bar low, and it's much easier to clear it, you know? Against that backdrop, I fully expect Red Hat to blow away the targets it just set up -- again.

And if recent history isn't enough, consider how Red Hat is making a serious push into the red-hot cloud computing market. The Red Hat Enterprise Virtualization (RHEV) platform is emerging as a credible alternative to VMware (NYSE: VMW  ) , particularly when the customer wants to diversify its virtual computing infrastructure at a low price point. In this, Red Hat has the active support of IBM (NYSE: IBM  ) , where RHEV is the platform behind many of Big Blue's cloud services. This market is poised for a 70% CAGR over the next four years, according to 451 Group research quoted by Whitehurst. The company is smart to position itself as a power player in this suddenly burgeoning sector.

With Linux rival Novell (Nasdaq: NOVL  ) essentially up for sale and Microsoft's (Nasdaq: MSFT  ) Windows 7 looking good, Red Hat is navigating uncharted waters right now. But the pudding is full of proof, and future prospects look delicious. Take today's drop as a buy-in opportunity.