Tomorrow, Red Hat (NYSE:RHT) will release its latest quarterly results. The company best known for its open-source Linux-based software products has continued to see its sales grow, but that hasn't kept its stock from sliding to its lowest level since the beginning of 2012.

Red Hat hasn't found any shortage of opportunities, with products designed to serve a wide variety of different businesses ranging from health care and finance to retail and travel. But at its current valuation, the stock needs the business to produce substantial growth to justify the share price. Let's take an early look at what's been happening with Red Hat over the past quarter and what we're likely to see in its quarterly report.

Stats on Red Hat

Analyst EPS Estimate

$0.31

Change From Year-Ago EPS

3.3%

Revenue Estimate

$359.84 million

Change From Year-Ago Revenue

14.3%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will Red Hat's earnings pull the stock back up?
From the perspective of analysts, Red Hat's earnings prospects have gotten a bit dimmer in recent months. Estimates for the May quarter have fallen by a penny per share, with a $0.04 decline in full fiscal-year earnings consensus calls. The stock has been quite volatile recently, falling about 10% since mid-March.

The bad news for Red Hat began after the company's previous earnings report in late March. The company failed to post its usual expectations-beating revenue figure, instead falling short of estimates and raising concerns that growth has slowed. Yet with an emphasis toward building long-term relationships with multi-year contracts, Red Hat sacrificed upfront revenue to get a predictable, steady stream of recurring revenue that should last well into the future. Moreover, with its cost advantage over offerings from larger rivals, Red Hat appeals to budget-conscious businesses seeking IT solutions.

Last month, Red Hat's stock climbed sharply as rumors arose about the potential for a buyout bid for the company. IBM (NYSE:IBM) opened a center in Beijing to assist in the development of open-source Linux business applications, collaborating with Red Hat to help IBM build out its application offerings for its Power Systems servers. Meanwhile, Oracle (NYSE:ORCL) has struggled recently, blaming its sales team for recent shortfalls in revenue but also facing stiff competition from Red Hat's JBoss Enterprise Middleware segment. For either company, Red Hat would make an easily digestible acquisition, yet rumors haven't led to any definitive action from either company, and an analyst downgrade sent shares back downward over the past month.

Still, Red Hat is moving forward with a number of initiatives. Its Enterprise Virtualization product emphasizes the power of the cloud, with collaborations with a number of industry leaders allowing Red Hat to integrate useful products from NetApp, Symantec, and Hewlett-Packard. It also unveiled its OpenStack Platform and Cloud Infrastructure products as part of its overall vision to create what it calls an Open Hybrid Cloud.

In Red Hat's quarterly report, watch to see which strategic direction the company chooses to take going forward. With so much happening in cloud computing, Red Hat has plenty of options, and it'll be interesting to see which ones it emphasizes for the near future.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool owns shares of IBM and Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.