Today we’re going to take a look at the well-established Red Hat Inc (NYSE:RHT). The company’s stock saw a decent share price growth in the teens level on the NYSE over the last few months. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine RHT’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. View our latest analysis for Red Hat
What is RHT worth?According to my valuation model, the stock is currently overvalued by about 63%, trading at $124.49 compared to my intrinsic value of $76.27. Not the best news for investors looking to buy! But, is there another opportunity to buy low in the future? Since RHT’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much RHT moves relative to the rest of the market.
Can we expect growth from RHT?Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 37.28% over the next couple of years, the future seems bright for RHT. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? RHT’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe RHT should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on RHT for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for RHT, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Red Hat. You can find everything you need to know about RHT in the latest infographic research report. If you are no longer interested in Red Hat, you can use our free platform to see my list of over 50 other stocks with a high growth potential.