Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of open-source software specialist Red Hat
So what: Driven by pent-up demand for cloud-centric datacenter updates, Red Hat reported an adjusted fourth-quarter profit of $0.26 per share, versus the average analyst estimate of $0.22 per share. Particularly impressive was the company's 30% growth in billings, its fastest increase in 12 quarters, which Mr. Market is naturally taking as a sign of more positive things to come.
Now what: I'd be cautious about riding today's momentum. While CEO Jim Whitehurst noted that Red Hat is on pace to "become the first pure-play open source company to achieve a billion dollars in revenues next fiscal year," the company still lacks the competitive edge to dependably produce outsized profits. With operating margins still half that of proprietary gorillas Microsoft
Interested in more info on Red Hat? Add it to your watchlist.
Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Microsoft is a Motley Fool Inside Value pick, and Motley Fool Options has recommended a diagonal call position on it. The Fool owns shares of Microsoft and Oracle. Try any of our Foolish newsletter services free for 30 days.
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