Rackspace (RAX)… Buy, Sell or Hold?

By: ispeculatornew
Date posted: 05.16.2013 (3:00 am) | Write a Comment  (1 Comment)

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Rackspace is one of those stocks that I’ve had on my radar for a long time but have struggled to get a solid opinion on. I have made comments during my Tech Stock Power Rankings (2012 and 2013) but have not been able to get enough of a sense to trade it. There are many things to like and dislike about the company:

Pros:

-Operates in the high growth cloud computing business
Revenues and earnings per share have climbed steadily for years

Cons:

Competes with the likes of Amazon (AMZN) and Google (GOOG)
Being unable to compete on prices, it’s stuck trying to find other ways to generate value
Trades at a high P/E

In the end, it does seem overvalued. Yes, I understand that companies such as Amazon trade at even higher P/E’s but there is the hope that they will be able to raise prices on some of its segments and become highly profitable. I don’t see how that could happen with RackSpace. It is already priced higher than most of its competitors and I simply don’t see where that growth would come from.

RAX Revenue Quarterly YoY Growth Chart

RAX Revenue Quarterly YoY Growth data by YCharts

Is It Too Late Though?

The biggest problem of course is that it seems late to short RackSpace, just look at how poorly the stock has done in the few months:

RAX

So would it be too late sell/short RAX? Here are the current numbers:

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I personally continue to think the upside is limited but I would struggle to take a decisive view so would likely “hold” for now. Do any of you hold a position on RAX?

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1 Comment

  1. Pingback by Dividend Link Time | The Dividend Guy Blog — May 17, 2013 @ 4:05 am

    […] 6. Rackspace (RAX)… Buy, Sell or Hold? @ IS. […]

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