Is Red Hat Stock Undervalued or Overvalued Before Earnings?

by Rob Otman
red hat stock red hat earnings 0

Red Hat (NYSE: RHT) is a $20 billion company today. Investors that bought shares one year ago are sitting on a 47.55% total return. That's above the S&P 500's return of 15.2%.

Red Hat stock is beating the market, and it reports earnings soon. But does that make it a good buy today? To answer this question, we've turned to the Investment U Stock Grader. Our Research Team built this system to diagnose the financial health of a company.

Our system looks at six key metrics...

Earnings-per-Share (EPS) Growth: Red Hat reported a recent EPS growth rate of 20.59%. That's above the software industry average of 18.4%. That's a great sign. Red Hat's earnings growth is outpacing that of its competitors.

Price-to-Earnings (P/E): The average price-to-earnings ratio of the software industry is 77.53. And Red Hat's ratio comes in at 75.08. It's trading at a better value than many of its competitors.

Debt-to-Equity The debt-to-equity ratio for Red Hat stock is 57.54%. That's above the software industry average of 49.7%. That's not a good sign. Red Hat's debt levels should be lower.

Free Cash Flow per Share Growth Red Hat's FCF has been lower than that of its competitors over the last year. That's not good for investors. In general, if a company is growing its FCF, it will be able to pay down debt, buy back stock, pay out more in dividends and/or invest money back into the business to help boost growth. It's one of our most important fundamental factors.

Profit Margins The profit margin of Red Hat comes in at 10.81% today. And generally, the higher, the better. We also like to see this margin above that of its competitors. Red Hat's profit margin is above the software average of 5.41%. So that's a positive indicator for investors.

Return on Equity Return on equity tells us how much profit a company produces with the money shareholders invest. The ROE for Red Hat is 20.02%, and that's above its industry average ROE of 8.72%.

Red Hat stock passes four of our six key metrics today. That's why our Investment U Stock Grader rates it as a Buy With Caution.

red hat stock red hat earnings 2

Please note that our fundamental factor checklist is just the first step in performing your own due diligence. There are many other factors you should consider before investing. That's why The Oxford Club offers more than a dozen newsletters and trading advisories all aimed at helping investors grow and maintain their wealth.

If you're interested in finding Strong Buy stocks yourself, check out 3 Powerful Technical Indicators for Smarter InvestingWe’ll show you how to eliminate emotional bias from your trading process with three powerful technical tools you can start using to boost your trading profits immediately. Click here to learn more

IU Stock Grader