Microsoft Corporation (MSFT), Oracle Corporation (ORCL): Here’s Why Red Hat Inc (RHT) Is Going Down

Red Hat shows nothing special on the operating margin front, either, as the company operates at 15.7% margin. Microsoft operates at an impressive 35.62% margin, Oracle operates at 38.55% margin, and IBM has a 21.05% operating margin. The higher a company’s operating margin is, the more mistakes it can afford to make and still be profitable. Red Hat is the smallest company and can afford the least number of mistakes. I think this is not good for the stock price.

Let’s turn to income-oriented investors. Not surprisingly, Red Hat does not pay dividends. You cannot expect a lot of money from Oracle Corporation (NASDAQ:ORCL)’s 0.71% yield. Likewise, IBM yields 1.83% and Microsoft yields 2.64%.

Bottom line

I think that Red Hat is on its way down. The company faces competition from big software vendors and it trades at a much higher valuation than its competition with no apparent motive. The growth expectations for the company are moderate and do not justify its current valuation. In addition to all that, the weakness of the world economy puts pressure on IT budgets, and, therefore, on growth prospects for Red Hat.

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines (NYSE:IBM)., Microsoft, and Oracle.. Vladimir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Here’s Why Red Hat Is Going Down originally appeared on Fool.com is written by Vladimir Zernov.

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