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Red Hat up big on Q2 numbers -- should you take profits?

Posted Sep 24th 2009 2:40PM by Steven MallasSteven Mallas RSS Feed
Filed under: Earnings reports, Microsoft (MSFT), Oracle Corp (ORCL), Red Hat Inc (RHT), Technology

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Red Hat (NYSE: RHT), a software business whose colleagues include Microsoft (NASDAQ: MSFT) and Oracle (NASDAQ: ORCL), reported Q2 numbers yesterday after the bell. Today, shares are up quite spectacularly. What's driving all the buying interest?

Well, the results were worthy of praise. Net sales increased 12%. Subscriptions were higher by 15%. Adjusted income, including the elimination of a tax benefit from the total, was 16 cents per share. According to Earnings.com, the market was looking for 15 cents per share. So, we've got the typical beat-by-a-proverbial-penny situation on our hands. I'd rather it be more than a penny, but I'll take it.

I also love it when cash flow is on the upswing. Cash from operations increased 14% during the quarter. The company, which supplies open-source solutions and Red Hat Enterprise Linux to the tech marketplace, delivered an excellent set of data to investors.

But, with the stock up well over 12% as of this writing, should investors be more inclined to buy or sell this afternoon?

If it were me, I would be inclined to sell into the euphoria I'm seeing on the screen. In fact, in between the last paragraph and this one, Red Hat jumped even higher. It's now up 13% as of this writing.

It's not that Red Hat can't prosper over time. The way I see it, the market may experience some significant profit-taking as we head toward the end of the year. It really depends on when you bought shares and what your long-term outlook is for the company. If you've held the stock for a while, now might be the time to book those gains. If you're interested in starting a position, you should try to be patient and wait for a lower price. Tough to do with all the bullish sentiment out there, I concede. As always, do your due diligence before making a move.

Disclosure: I don't own any company mentioned; positions can change without notice.

Tags: inthenews, linux, Microsoft, MSFT, Oracle, ORCL, Red Hat, RedHat, RHT, software, tech stocks, TechStocks

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Last updated: November 26, 2009: 04:43 AM

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