If Red Hat
On Monday, the problem was that CFO Kevin Thompson abruptly left for the non-reason "other interests." The market slapped the stock, probably because rats fleeing sinking ships have often been known to cloak their motives as "other interests." There's no evidence of shenanigans at Red Hat, but fear is enough.
Today's problem is a little thing called reality. Red Hat turned in a great-looking quarter, even if the press release does a bit of irksome obfuscation. Revenues were up 53% over the prior-year period, to $41.6 million. Gross margin surged to 80% over last year's 68%. Selling, general, and administrative expenses plus equity-based compensation dropped 4% as a portion of sales. That kind of improvement led to earnings of $0.05 per share, against last year's penny. Heck, it even generated $25 million in free cash flow.
So, what's the big problem? Why did reality bite? Because hyperperformance like that can't keep a stock afloat when it's already priced beyond perfection. When a stock carries a P/E above 160, investors will jump ship for just about any reason. The small, $1.4 million difference between actual revenues and analyst expectations is getting the blame today.
Maybe investors are just readjusting their sights as it becomes clear that Linux doesn't exempt a firm from the laws of nature. With big, savvy competitors like HP
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Fool contributor Seth Jayson thinks the best thing about Linux is that it's pretty much free. He wonders if the folks at Red Hat worry about that. He owns no stock in any companies mentioned. View his Fool profile here.