RHT Stock Has More Room to Grow
Today’s stock represents one of my favorite investing strategies for gaining from prevailing technology trends. The “picks and shovels” way of stock investing helps investors reap handsome rewards as a trend gathers steam, thereby increasing the demand for the products and services provided by such companies.
One such company is Red Hat Inc (NYSE:RHT), a leading provider of open source software solutions for companies jumping on the cloud bandwagon. The company provides software and services to companies that want to transition to cloud computing. As organizations aim to modernize their IT infrastructure for the hybrid cloud, they are increasingly looking at Red Hat as their key partner in this transformation.
I am bullish on Red Hat stock for the following reasons.
RHT stock is geared to the rising cloud computing trend, which should only become stronger in the coming years. Apart from the agility in operations and the cost savings that result from adopting cloud computing, new cloud technologies are bringing numerous possibilities.
As per a Forrester Research, Inc. survey, 38% of enterprise decision-makers said that they were building private clouds. Another 32% said they were going to procure public cloud services, and the other respondents said they have plans to implement some form of cloud technology this year. The hybrid cloud model is also becoming popular, with 59% of the survey participants saying they were adopting that model. (Source: “6 trends shaping IT cloud strategies today,” CIO, June 19, 2017)
The next generation of IT and business capabilities will be shaped by trends like digital transformation, hybrid cloud, and open source. Red Hat is well positioned to gain from these trends. The company not only has experience in working with open source communities to develop technologies, it has a broad customer base that is interested in its diverse portfolio of products.
Moreover, Red Hat is always looking to improve its offerings. The company announced last week that it has acquired the assets of Permabit, which provides software for data deduplication, compression, and thin provisioning. In short, Permabit has expertise in cleaning data in order to improve storage and data access. (Source: “Red Hat Acquires Permabit Assets, Eases Barriers to Cloud Portability with Data Deduplication Technology,” Red Hat Inc, July 31, 2017.)
With the addition of these capabilities to the world’s largest leading enterprise Linux platform, Red Hat will be able to better enable enterprise digital transformation through more efficient storage options.
Red Hat recently delivered its highest-ever Q1 total revenue growth rate in U.S. dollars in four years, at 19% year-over-year. Not only this, subscription revenue grew 14% year-over-year in the first quarter as the infrastructure-related offerings approach a $2.0 billion annual run rate. (Source: “Red Hat Reports First Quarter Results for Fiscal Year 2018,” Red Hat Inc, June 20, 2017.)
The company’s largest customers continue to expand their commitments; all of its 25-largest deals were renewed during the first quarter. This positive momentum has enabled Red Hat to raise its full-year guidance.
Red Hat’s ability to deliver technologies that help its customers modernize and manage their infrastructure and application development platforms for the hybrid cloud has been instrumental the company’s its success. This has had a positive impact on Red Hat stock, which has gained about 41% year-to-date and has posted a 77% increase over the past five years.
Chart courtesy of StockCharts.com
As changing trends in IT grip enterprises across the globe, the company has lot of potential, and RHT stock has more room to grow.
The Bottom Line On Red Hat Stock
Red Hat is a picks and shovels play that merits inclusion in a growth investor’s portfolio for the simple reason that, as enterprises increase their dependence on cloud infrastructure and open source technologies, Red Hat stock should continue growing.
Demand for multiple technologies has been driving annual subscription revenue growth, and the company has been consistently growing its revenue and free cash flow.
As businesses look for effective data-management and storage solutions, Red Hat has cloud computing platforms fueled by the power of an open community. This approach has immense benefits and offers reliable, high-performing operating systems, middleware, cloud, mobile, and storage technologies. Therefore, RHT stock should gain in the changing digital landscape.