Rackspace Shares Popped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they’re material to our investing thesis.

What: Shares of Rackspace Hosting (NYSE: RAX  ) soared as much as 11% in intraday trading Friday after Verizon announced a $1.4 billion acquisition of Terremark Worldwide.

So what: The rally makes sense in that Rackspace and Terremark are peers. But the early gains were clearly overdone. Rackspace was already worth more than twice Verizon's bid before the open today. The stock has since rallied 5%, resulting in a better than $4 billion market cap.

Now what: And yet more gains are likely. Rackspace is the class of its industry, thanks to a loyal and growing base of cloud-computing customers who are addicted to its fanatical levels of support. Any bid would have to add a significant premium for the company's efficient network, which has become legendary for producing outsized returns on capital.

Interested in more info on Rackspace Hosting? Add it to your watchlist.

Rackspace Hosting is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is at least 10% better than other disclosure policies.


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