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Having followed Red Hat (NYSE:RHT) for years as a reporter I must admit I'm proud of its success.

The enterprise Linux and cloud software provider has become a $1 billion company far from the madding crowd, and is now putting its name on a Raleigh, NC office tower formerly owned by a power company. It is playing the "great game" of the cloud well, fighting Amazon's AWS cloud on the one hand, introducing a product for AWS on the other.

Investment advisers have noticed. It's a top pick at Morgan Stanley. Our Barry Randall says you can own it for 30 years and be a winner.

But how much of a winner is it? The stock's up just 25% over the last five years. Revenue has more than doubled in that time, operating margins have been steady. Net income stood at 55 cents a share for its last fiscal year, up from 36 cents a share in fiscal 2008.

Does that "earn" a PE multiple of 65? When Microsoft (NASDAQ:MSFT) is at 11, Apple (NASDAQ:AAPL) at 13 and Google (NASDAQ:GOOG) at 20?

The Stock Croc doesn't think so and, frankly, I'd like to see it cheaper before I put my money down on it. How much cheaper? I think a fall to 35 is entirely possible, as traders adjust to news that Amazon is competing with Red Hat on support, and that it's getting dragged into the industry's lawsuits.

But while the short term technicals aren't great, and it could soon be headed down, I would still put this on a long-term buy list, seeing the next bear sighting as an opportunity to buy rather than sell. Here's why.

Enterprise customers now see themselves running produces like Red Hat Enterprise Linux 5 for up to 10 years and that's profitable. Microsoft has gone from fearing Red Hat to embracing it, even in its Azure cloud. Red Hat is elbowing its way into a big position in the server virtualization space. Updates to popular programs keep coming out like clockwork.

Strategically CEO Jim Whitehurst has not missed a trick. He's surrounding VMWare (NYSE:VMW) with wide industry support for KVM. He has quietly joined OpenStack, so he won't miss that pure open source cloud development model. He's set up an independent advisory board for GlusterSF, so its storage system won't run into the headwinds Rackspace ran into with OpenStack.

Since guiding analysts down on its most recent conference call Red Hat has made up all the ground it lost in the wake of that announcement. That's the sign of a strong company.

Buy on weakness.

Source: Will Shareholders Keep Benefiting From Red Hat's Success?