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Red Hat's Valuation Finally Matters

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Linux

While I've always had my doubts about Red Hat's (RHT) long-term growth potential in cloud and virtualization services, management systematically found ways to convince the Street that the company was turning the corner and averting threats from rivals including Oracle (ORCL) and VMware (VMW).

So, ahead of the company's fiscal second-quarter results, investors -- still casting their lot towards long-term revenue growth -- didn't mind paying 67 times earnings for the stock, which at the time was five times more than both Microsoft (MSFT) and Oracle.

However, following Red Hat's announcement, which included worse-than-expected guidance, the valuation issue finally came home to roost. As the stock dropped to an intraday low of 12%, I still wasn't convinced that investors got the message.

This has been a recurring theme for Red Hat. Truth be told.




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