Tuesday, October 04, 2005

Red Means Green: Red Hat

If you checked out Barrons this weekend, you might've come across an article on Red Hat.

Software company Red Hat (RHAT) has been piggybacking off the Linux/open source boom for quite some time now.

Revenue has been explosive as of late, though, surprising even Wall Street's most optimistic analysts.

Sure, IT spending is mired in its ugly cyclicality, but timing couldn't be better for Red Hat.

Call it the Linux Exodus, with RHAT leading believers to the promised land.

Partnered with IBM, Dell, and HP, Red Hat has been able to maximize value from its subscription-based business model and subsequently grow its earnings roughly 50% from the same period year ago.

All to the chagrin of Microsoft, whose Windows OS monopoly continues to deterioate.

Going forward, RHAT should be seeing more green than red.

On a recent conference call, execs said that its sales cycles have shortened, transaction size is mushrooming, and its operations are scaling nicely now that the company has ample cash to invest in new opportunities.

Fast growers with healthy balance sheets don't come cheap -- RHAT trades at 82 X 2005 earnings and 55 X next year's forecast.

On Tuesday, Catablast! Media Group initiates coverage on Mr. Red with a Hold Rating as we're convinced that community-driven software is an inextricable part of Web 3.0.

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