Rackspace Hosting Shares Popped Then Dropped: 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 14% before falling all the way back down to 2% as of this writing. A good earnings report wasn’t good enough to overcome a tech sell-off.

So what: Revenue rose 32% year-over-year to $247.2 million as Rackspace added more than 10,000 customers and 3,500 servers during the quarter. Profits improved 62.5% to $0.13 a share. Analysts were expecting $0.12 a share on $241.3 million in revenue, according to data compiled by Yahoo! Finance.

Now what: Call it just another great performance for Rackspace, which has now seen year-over-year revenue growth accelerate for three consecutive quarters. Or maybe call it a buying opportunity. Sure, the stock trades for 46 times next year’s consensus earnings estimate, but efficient growers like Rackspace almost never trade on the cheap. Do you agree? Disagree? Weigh in using the comments box below.

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

Fool contributor Tim Beyers is a member of the Motley Fool 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 Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

Motley Fool newsletter services have recommended buying shares of Rackspace Hosting. Try any of our Foolish newsletter services free for 30 days. 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 has a disclosure policy.


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  • Report this Comment On August 06, 2011, at 12:10 AM, burningdaylight2 wrote:

    It amazed me that RAX dropped after doing so well. It shows how irrational the psychology of the market is getting. I will keep my position and watch the crowd stampede.

  • Report this Comment On August 07, 2011, at 1:19 PM, keesluijt wrote:

    Agreed.

    I'm a holder of RAX stock for almost 3 years now, and it's sometimes a wild ride, like so many other stocks in this part of the tech sector.

    RAX is doing well, the numbers add up, the quarterly results are once again ahead of the market.

    Current movements are fear induced: what happens after the downgrade? what happens in Europe? what happens with bonds etc etc?

    Coming times will be wild and bumpy... hold on, by once in a while and look ahead 3 - 5 years

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