For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Red Hat Inc (NYSE:RHT) useful as an attempt to give more color around how Red Hat is currently performing.
Was RHT’s weak performance lately a part of a long-term decline?
RHT’s trailing twelve-month earnings (from 31 August 2018) of US$286m has declined by -6.4% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 14%, indicating the rate at which RHT is growing has slowed down. What could be happening here? Well, let’s take a look at what’s transpiring with margins and if the whole industry is feeling the heat.
In terms of returns from investment, Red Hat has invested its equity funds well leading to a 22% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 5.9% exceeds the US Software industry of 5.7%, indicating Red Hat has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Red Hat’s debt level, has increased over the past 3 years from 11% to 18%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have unpredictable earnings, can have many factors impacting its business. You should continue to research Red Hat to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RHT’s future growth? Take a look at our free research report of analyst consensus for RHT’s outlook.
- Financial Health: Are RHT’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 August 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.