Please ensure Javascript is enabled for purposes of website accessibility

Why Red Hat, Inc. Gained 11% in September

By Anders Bylund – Oct 7, 2016 at 8:25AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The inveterate Linux vendor is beating Wall Street estimates and taking names.

Image source: Getty Images.

What happened

Shares of Red Hat (RHT) rose 10.8% in September 2016, according to data from S&P Global Market Intelligence. The jump rested on a strong second-quarter earnings report, and was then reinforced by a steady stream of bullish analyst notes praising those results.

RHT Chart

RHT data by YCharts

So what

The open-source software specialist saw second-quarter earnings rise 17% year over year, based on 17% stronger sales. Both of these figures were above Wall Street's consensus estimates. Application development tools led the way with 33% higher sales, and Red Hat customers' adoption of long-term support subscriptions is pacing ahead of the basic revenue growth.

Now what

Looking ahead, Red Hat's management boosted full-year revenue and earnings targets above the then-current analyst view. The greatest challenge on the table today might be to set an appropriate spending level to support Red Hat's business growth. In a phone interview, CEO Jim Whitehurst told The Motley Fool that the company will slow down its rampant hiring growth in the second half of 2016. A recent rush of new salespeople and engineers has put some short-term strain on Red Hat's operating expenses.

Red Hat shareholders like yours truly have now enjoyed a market-beating 77% return over the last three years, and the stock is trading close to multiyears highs after a deep February dip. The long-term story here is as exciting as ever, and I intend to stay invested in this remarkable open-source business for the long haul.

Anders Bylund owns shares of Red Hat. The Motley Fool has no position in any of the stocks mentioned.

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 Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.