from briefing:
Red Hat (RHAT) 245 3/4 +32 1/4 : Make no mistake. Red Hat is a fine company. But the stock no longer reflects the future business prospects of Red Hat or even Linux. It is simply a plaything of daytraders. As such it bears no relationship between its stock price and its underlying business. In a way, we feel this is tragic, particularly for employees at Red Hat who are not yet able to sell their shares. When the game with Red Hat is finally over, and who knows when that will be (the indicator will be steadily declining volume), the shares will start to find an eventual resting place among people willing to hold the shares for the long term. That will be at much lower prices than it is now. This will encourage employees to sell everything they have as quickly as they vest, because by then, the overall trend will be downward. That has to make it harder to both keep and attract employees, because any new option plan will have to be issued at no lower than 85% of the fair market value, which will be the current market price, no matter how absurd. Sticking around to help the company grow its stock price will not be considered reasonable by most objective standards. It is hard to imagine how higher prices could hurt a company long term, but Red Hat may provide such an example over the next three years. Red Hat has just $14.1 million in TTM revenue (trailing twelve months), but a market capitalization of $17.2 billion. This gives it a PRICE/SALES ratio of more than 1,200. For a company with legimate revenues, and a legitimate business, this is, frankly, ridiculous. There are only three other companies with sales greater than $10 million that even come close to this level (Internet Capital, ICGE, with P/S of 990, Sycamore Networks, SCMR, with P/S of 809, and Terra Networks, TRRA, with P/S of 557 - the next closest is around 200.) But that doesn't mean the stock won't continue to go up from here. Just don't join in the game now thinking you are buying a piece of the future of Linux. That's what put RHAT in the spotlight originally, but that isn't what is driving it now. RHAT has become a pure trading vehicle. - RVG |
