LOS ANGELES (AFX) -- Red Hat Inc.'s stock fell over 2% Wednesday as investors digested the software firm's financial forecast that disappointed more bullish investors, though several analysts continued to recommend the stock.
Red Hat, after the prior close, said that its fiscal fourth-quarter profit more than doubled and revenue shot up 37%, as subscriptions for its open-source software surged, helping its latest results slightly outpace expectations.
Nevertheless, the company's shares fell as low as $26.70 Wednesday, reversing a much of a 9% gain enjoyed in the month leading up to the results. Though roughly in line with estimates, Red Hat's financial forecast apparently failed to inspire.
By the closing bell, the stock had recovered from its steepest slump to close off 62 cents at $28.19. Shares have ranged in price from $10.42 to $31.05 over the last 52 weeks.
Steven Ashley, an analyst at Robert W. Baird, said that the stock had been 'priced for perfection' and expectations were running high for the results. The shares' slump could represent a chance to pick up the stock, which he rates market outperform, he added.
'Our investment thesis remains firmly intact,' he told clients. 'We recommend purchase, especially at prices near $25.' Ashley's target price for the stock is $30.
Profit more than doubles on strong sales
After the close of Tuesday trading, Red Hat said that its quarterly profit climbed to $27.3 million, or 13 cents a share, from $11.8 million or 6 cents a share a year earlier.
Revenue for the three-month period increased to $78.7 million from $57.5 million, with subscription revenue rising 44%.
Wall Street analysts, on average, expected the Raleigh, N.C.-based firm would report a profit of 12 cents a share on revenue of $78.3 million, according to a Thomson First Call survey.
'This past year's results affirmed our ability to scale for growth,' Chief Financial Officer Charlie Peters said. He added that the company managed to expand its margins even while investing in systems and hiring more staff to scale its infrastructure.
Red Hat's gross margin for the quarterly increased to 84% from 81% in the comparable period a year ago, while the firm boosted its operating margin to 25% from 13%.
The finance chief said that Red Hat's cash flow from operations 'improved significantly' for the entire fiscal year.
Financial outlook roughly in line with estimates
During a conference call held to discuss the results, Peters said that the company expects to post a fiscal first-quarter profit of around 8 cents a share on revenue ranging from $82.5 million to $83.5 million. The outlook was roughly in line with the average of analysts' estimates that called for a profit of 9 cents a share on revenue of $83 million.
For the whole fiscal year, Peters put revenue at $370 million to $375 million, slightly above the average estimate of $368.8 million. He declined to provide a specific estimate of expected per-share profit for the year, which analysts currently estimate at 41 cents a share, on average.
Red Hat expects to hire around 100 new staff during each quarter of the current fiscal year, while continuing to invest in its systems, according to Peters.
Red Hat is the leading player on the market for the Linux open-source operating system, an alternative to proprietary operating systems from the likes of Microsoft Corp. , which dominates the global market for software used to power computers.
The company also offers management services and training to help companies adopt the alternative operating system. This story was supplied by MarketWatch. For further information see www.marketwatch.com.