Critical Review: Facebook (FB) vs. Red Hat (RHT)

Facebook (NASDAQ:FB) and Red Hat (NYSE:RHT) are both large-cap computer and technology companies, but which is the better investment? We will compare the two companies based on the strength of their dividends, institutional ownership, valuation, risk, analyst recommendations, earnings and profitability.

Insider & Institutional Ownership

60.2% of Facebook shares are held by institutional investors. Comparatively, 89.3% of Red Hat shares are held by institutional investors. 16.3% of Facebook shares are held by company insiders. Comparatively, 0.6% of Red Hat shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Analyst Ratings

This is a summary of recent ratings for Facebook and Red Hat, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Facebook 3 6 37 0 2.74
Red Hat 0 13 10 0 2.43

Facebook presently has a consensus price target of $192.23, indicating a potential upside of 7.47%. Red Hat has a consensus price target of $167.19, indicating a potential downside of 8.46%. Given Facebook’s stronger consensus rating and higher probable upside, analysts plainly believe Facebook is more favorable than Red Hat.

Profitability

This table compares Facebook and Red Hat’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Facebook 39.60% 27.51% 23.97%
Red Hat 12.91% 35.35% 9.84%

Volatility and Risk

Facebook has a beta of 0.88, meaning that its share price is 12% less volatile than the S&P 500. Comparatively, Red Hat has a beta of 0.54, meaning that its share price is 46% less volatile than the S&P 500.

Valuation and Earnings

This table compares Facebook and Red Hat’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Facebook $55.84 billion 9.31 $22.11 billion $7.57 23.63
Red Hat $3.36 billion 9.60 $433.99 million $2.79 65.46

Facebook has higher revenue and earnings than Red Hat. Facebook is trading at a lower price-to-earnings ratio than Red Hat, indicating that it is currently the more affordable of the two stocks.

Summary

Facebook beats Red Hat on 10 of the 14 factors compared between the two stocks.

Facebook Company Profile

Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. The company's products include Facebook that enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers; Instagram, a community for sharing photos, videos, and messages; Messenger, a messaging application for people to connect with friends, family, groups, and businesses across platforms and devices; and WhatsApp, a messaging application for use by people and businesses to communicate in a private way. It also provides Oculus, a hardware, software, and developer ecosystem, which allows people to come together and connect with each other through its Oculus virtual reality products. As of December 31, 2018, it had approximately 1.52 billion daily active users. The company was founded in 2004 and is headquartered in Menlo Park, California.

Red Hat Company Profile

Red Hat, Inc. provides open source software solutions to develop and offer operating system, virtualization, management, middleware, cloud, mobile, and storage technologies to various enterprises worldwide. It offers infrastructure-related solutions, such as Red Hat Enterprise Linux, an operating system platform that runs on hardware for use in hybrid cloud environments; Red Hat Satellite, a system management offering that helps to deploy, scale, and manage in hybrid cloud environments; and Red Hat Enterprise Virtualization, a software solution that allows customers to utilize and manage a common hardware infrastructure to run multiple operating systems and applications. The company offers application development-related and other technology solutions, such as Red Hat JBoss Middleware, a solution for developing, deploying, and managing applications; integrating applications, data, and devices; and automating business processes in hybrid cloud environments; The company's application development-related and other technology solutions also includes Red Hat cloud offerings, a software solution that enables customers to build and manage various cloud computing environments; Red Hat Mobile, a software development platform that enables customers to develop, integrate, deploy, and manage mobile applications for enterprises; and Red Hat Storage, a software solution that enables customers to manage large, unstructured, or semi-structured data in hybrid cloud environments. It also provides consulting, support, and training services; and realtime operating system, distributed computing, directory services, and user authentication. Red Hat, Inc. has collaboration with Juniper Networks Expand to provide a unified solution for enterprises designed to manage and run applications and services. The company was formerly known as Red Hat Software, Inc. and changed its name to Red Hat, Inc. in June 1999. Red Hat, Inc. was founded in 1993 and is headquartered in Raleigh, North Carolina.

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