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Will Red Hat Continue Its Upward Trajectory?

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Red Hat stock has outperformed the computer software industry in 2017 to date

Earlier in the series, we discussed Red Hat (RHT) stock’s upward trajectory. Red Hat reported revenue growth of ~21% in fiscal 2Q18, which is one of the company’s highest growth rates in the last few years. The last time Red Hat reported similar growth was way back in 2011. This top-line growth coupled with expansion in margins is expected to push Red Hat stock further in the future.

In 2017 to date, Red Hat stock has risen close to 57%. In comparison, the computer software industry has risen 27.4%. Thus, Red Hat stock has significantly outperformed the sector.
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Strategic partnerships and acquisitions would boost Red Hat’s product portfolio

Earlier in the series, we discussed the recent extension of Red Hat’s OpenShift partnership with Microsoft (MSFT) Azure. This partnership is expected to further boost Red Hat’s offerings adoption, as Microsoft is behind only Amazon in the rapidly growing and competitive cloud space. Red Hat’s partner base includes prominent technology players like IBM (IBM), Intel (INTC), Dell Technologies, Google (GOOG) cloud platform, Amazon (AMZN) AWS (Amazon Web Services), and Microsoft Azure.

The acquisition of Permabit will enhance Red Hat’s data storage and access capabilities. These partnerships and acquisitions will boost Red Hat’s offerings mix, which could boost its top line. Red Hat’s strategy of acquiring companies that not only get integrated into its current offerings but also help it to expand its presence in higher-growth segments is also a positive sign.

Red Hat’s recurring revenues and focus on emerging and fast-growing technologies like hybrid cloud could further improve its top line. Considering all these factors, Red Hat stock’s upward journey is likely to continue.

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