Red Hat Has Never Been Hotter

On Wednesday, the Linux vendor reported fourth-quarter revenues and revenue so then ahead of analyst estimates. With 21% year-over-year sales growth to $297 million, Red Hat became the first open-source software specialist to deliver for the time being $1 billion of revenue in one fiscal year. Non-GAAP earnings as well rose 12% to $0.29 per share.

The road aheadYesterday is history however tomorrow is no mystery for Red Hat. CEO Jim Whitehurst sees several macro trends coming at the same time to drive strong growth over the straightway several years, and he's doing his part to fan the flames. The first spark comes from cloud computing.

"As companies move toward the cloud, the first thing they do is replatform their applications onto a platform they feel confident can to tell the truth run in the cloud," Whitehurst told me in a phone interview. "They may just run that on bare metal in the data center, however they're getting there so they can trust that everything works in the longer term." In short it's a slow burn that starts with a few operating system sales on traditional hardware, paving the way for a cloud-based explosion of licenses later on.

Storage provides another serious catalyst. Red Hat is new to this game afterwards acquiring data management expert Gluster in January, and isn't even taking orders in this market but. However the potential for big sales is enormous: "The explosion of data, whether that's Big Data or just unstructured data, in combination with this replatforming to Linux to get ready for cloud, are probably the two largest catalysts." Whitehurst named Pandora Media as a big customer for organizing unstructured data -- in such a case oodles of media files to be tied at the same time with track information in a database. It's not as easy as it may sound, and Whitehurst "would hazard a guess that virtually all de-duplication runs on Linux systems" already. He just wants a bigger slice of that revenue by providing the data-handling tools, too.

Red Hat is working hard to capitalize on these opportunities. For instance, the mere act of acquiring Gluster and in doing so putting a respected brand with a big bankroll behind that software instantly made Gluster more attractive to business-class clients. The cloud and Big Data "are big, mega, secular trends that are working in our favor," according to Whitehurst.

Trailing P/E ratio north of 80

That's why Red Hat deserves a trailing P/E ratio north of 80: The company is not only riding two of the most exciting trends in computing today, however is making them feed off of one another, too. Read up on Big Data in this free report and watch a video on the power of cloud computing, and see if you don't come away salivating over Red Hat's shares.