When a company's 39-year-old CFO quits just days before quarterly earnings to pursue new opportunities, it's a clue to invest your money elsewhere. When the same company's stock is priced beyond perfection, that's proof it's time to sell.
Red Hat is the stock market's favorite play on Linux, selling more of the technology than anyone else in the market. But things are going to get harder for Red Hat management -- not to mention the shareholders.
For starters, Novell
Prospects for the Linux market are clouded by Unix software maker SCO Group's
Even worse, at $24.00, Red Hat trades at a whopping 110 times 2004 earnings, or 22 times expected fiscal revenue for 2005. With a market cap of $4.5 billion, Red Hat's valuation outstrips the entire $1 billion market forecast for Linux. Even if Red Hat's first-quarter figures (out on Thursday) blow the socks off analysts' estimates, they still won't be able to provide a convincing case for that valuation level.
At such a lofty price, Red Hat stock remains vulnerable to even the smallest misstep. Is it any surprise the CFO has decided to call it quits?
Fool contributor Ben McClure does not own shares of any of the companies mentioned.