What Should Investors Know About Red Hat Inc’s (NYSE:RHT) Long Term Outlook?

The most recent earnings update Red Hat Inc’s (NYSE:RHT) released in November 2017 signalled that the company gained from a strong tailwind, eventuating to a double-digit earnings growth of 27.26%. Below is a brief commentary on my key takeaways on how market analysts view Red Hat’s earnings growth outlook over the next few years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in. View our latest analysis for Red Hat

Analysts’ outlook for next year seems buoyant, with earnings expanding by a robust 18.69%. This growth seems to continue into the following year with rates arriving at double digit 40.23% compared to today’s earnings, and finally hitting $685.9M by 2020.

NYSE:RHT Future Profit Dec 27th 17
NYSE:RHT Future Profit Dec 27th 17

While it is useful to understand the growth year by year relative to today’s level, it may be more insightful to determine the rate at which the business is moving every year, on average. The advantage of this technique is that it ignores near term flucuations and accounts for the overarching direction of Red Hat’s earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 17.27%. This means, we can anticipate Red Hat will grow its earnings by 17.27% every year for the next couple of years.

Next Steps:

For Red Hat, there are three key factors you should further examine:

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

2. Valuation: What is RHT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether RHT is currently mispriced by the market.

3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of RHT? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!