Linux provider Red Hat Software
Yesterday's second-quarter results show continued strength in the business, which does little to explain today's 13% haircut. Revenues of $46 million were up 60% over the prior-year quarter, and the recent trend is for accelerating sales growth -- a very good sign. At the bottom line, $0.06 per share tripled last year's showing.
Another noteworthy improvement is the growth in gross margin to 79% from 73%. It's still a long way from the standard achieved by the likes of Adobe Systems
Linux is still in its infancy. With the major players like IBM
Given Red Hat's leadership in the field, it looks ideally positioned to take the lion's share of growth. But it will be a bumpy road. Even after its continuing slide, it can get scarier, as investors dump it today in response to guidance that was lower than analysts had hoped. But therein lies opportunity.
The balance sheets are strong: With $1 billion in cash and little in the way of long-term red ink, the $1.4 billion enterprise has put up $54 million in free cash flow in the first half of the year. That makes it look pretty cheap for a software leader putting up double-digit revenue growth and triple-digit earnings uptakes.
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Seth Jayson has no position in any company mentioned in this article.