Why Rackspace Shares Got Wacked

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 cloud-computing company Rackspace Hosting (NYSE: RAX  ) plummeted 26% today after its quarterly results disappointed Wall Street.

So what: The stock has been battered in 2013 on signs of slowing growth, and today's first-quarter miss -- EPS of $0.19 on revenue of $362.2 million versus the consensus of $0.17 and $366.6 million, respectively -- only reinforces those worries. In fact, adjusted operating margin contracted 230 basis points from the previous quarter, raising plenty of concern over its competitive position going forward. 

Now what: I'd look into today's big plunge as a possible buy-in opportunity. "Building a lasting, successful business is our number one priority. However, our immediate focus is on restoring our growth trajectory," said CFO Karl Pichler. "We are excited to see the industry momentum behind OpenStack and we are determined to claim the service leadership position in the Open Cloud movement." More important, with the stock hitting a new 52-week low today and off about 50% year to date, it might be an opportune time to buy into that bullishness.

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

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9/27/2016 4:01 PM
RAX $31.59 Up +0.03 +0.10%
Rackspace Hosting CAPS Rating: ***