Red Hat (RHT, Financial) delivered strong results in the third quarter. Looking ahead, Red Hat is confident of maintaining its growth momentum. Its transition from enterprise data center to open hybrid cloud computing is also gaining good traction in the market. An impressive 48% growth in revenue indicates that the company is growing at a fast pace. To strengthen its growth strategy, Red Hat is focusing on various initiatives. It is expanding its collaboration with customers, along with the product portfolio. Let's see how Red Hat is positioned for the long run.
Making smart moves
Red Hat has plans to modernize its data centres. For this it is making significant expansion of its relationship with its customers. The company is working closely in this regard, and it is pleased to renew all of its 25 deals during the quarter which also indicates good customer loyalty and customer reliance in the company.
Moving on, Red Hat also brought in expansions in its portfolio of technologies which are seeing good ramp out in the market on the back of some impressive features. It’s recently announced Red Hat storage server 3.0 is sailing well in the market. The thing that is attractive about this offering is that it is well suited for data intensive workloads including big data, operational analytics, enterprise price sharing and collaboration.
Further its RHCI 5 is also a good introduction in the market as this solution supports the customers as they move from traditional data center visualisation to Open Stack powered cloud. The attractive feature in this is that with this, the customers can now manage their virtualization and OpenStack environment simultaneously with a common platform.
Moving on, in order to speed up the deployment of open hybrid cloud solutions Red Hat has announced expanded relationship with some of the important alliance partners. For example, Red Hat is now working with Wipro’s open source practise which will design a joint go-to-market with it. This will deliver a comprehensive cloud strategy and solution for its clients. Moreover, Red Hat is seeing large growing opportunities with the OpenStack. It is anticipating that it will emerge as a platform for choice for NFV workloads. To support this, Red Hat is engaged in signing new global alliance partners in this area to further expand its offering.
Conclusion
Now moving on to the fundamentals, with a trailing P/E of 72.62 the stock looks highly over valued but the forward P/E of 37.09 shows good growth in the earnings in the near term. But in the long term the company’s earnings are disappointing as its earnings are growing at a CAGR of just 15.34% which is less than the industry average of 20.61%. The long term prospects for the company might be disappointing but the company is making impressive move in the market with its products. In addition the transition efforts of Red Hat are also paying off however, it might take some time to be fully yielding until then the short term investors can pick Red Hat despite being expensive because in the short term its earnings are showing good growth.
