Red Hat’s Silly Move to NYSE

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by Jon C. Ogg

Stock Tickers: RHAT, ORCL, MSFT, NOVL

Red Hat (RHAT) has not been without controversy nor been without problems of late.  It has managed to see its core Linux office suite market come under a longer-term threat from the likes of Oracle (ORCL), and Microsoft’s (MSFT) settlement with Novell (NOVL) where it will make Suse Linux interoperable with Windows and offer support has it running for cover.

Last week we found out that several published articles said Red Hat has the same offer from Microsoft that Novell had, but it is apparently taking a pass on the deal.  The one saving grace for the company is that its Linux office suite is one of the few Linux office suite brand names that people can buy right off the shelf at office supply and technology stores.

Well, after Friday’s close the company announced it was going to try to switch its NASDAQ listing and go over to the NYSE under the ticker "RHT."  This is just silly for the company to try.  Such moves can create a short squeeze where certain short sellers decide to cover, but NASDAQ is more geared toward the stock trading of Red Hat as a company because of valuations and because of the investor type it attracts.  Maybe this will keep a smaller number of short sellers at bay whenever there is bad news from the company, but it will also take it off fo the radar for many "Buy Only" day traders and investors who like buying the stock.  It is far more important and more appealing to share buyers than it is having to try to cope with short selling.

RHAT has a market cap of $3.1+ Billion, trades 9 million shares per average day, currently has a $16.00+ share price, makes money on a raw profitability basis, and has more than enough liquidity to meet NYSE listing rules.  But with a price to earnings ratio of 43, a price to book value ratio of over 4.0, and a price to sales ratio estimated at about 8-times fiscal FEB-2007 sales, this is far from a "cheap stock."  NYSE traders won’t really care that its 52-week high of $32.48 is close to 100% higher than current prices because a stock slide isn’t what more traditional NYSE listed traders tend to use as a sole determining factor of it being cheap or expensive. 

Maybe the company is just trying to give the air that it is a more established brand and more stable company, but this is probably not a great move for share holders that own the shares higher that are feeling "long and wrong."  The market doesn’t exactly telegraph that this is a great move because the shares are down another 1.5% at $16.42 after the first hour of trading.  This is evident of a company not consulting with holders and taking share price reaction into account of its decision.  The company was thought of as a potential buyout candidate in months past, but even with the CEO saying they want to be an independent company it makes you wonder if anyone WOULD EVEN WANT TO ACQUIRE IT now.

Jon Ogg can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.