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Why We're Avoiding Rackspace and Plug Power

Shares of Rackspace Hosting and Plug Power climbed today, but should investors look at the bigger picture? In today's "Movers and Shakers" segment of Investor Beat, Chris Hill and Motley Fool analyst Mike Olsen discuss these two stocks.

Rackspace is up 8.9% after better-than-expected first-quarter results, with a 16% revenue increase and a 5% boost to profits. But Mike argues that cloud-based server hosting is a horribly commoditized market, with companies such as, Google, and Microsoft cutting their prices up to 85% in the last quarter. Mike questions Rackspace's ability to maintain consistent revenue in such an environment, but he sees a bigger issue that may be indicative of Rackspace's own feelings about its future: It hasn't purchased any new shares, even though the price has been nearly cut in half over the past 52 weeks. 

Chris and Mike also dive into Plug Power's recent uptick, one day before an expected earnings loss. Mike has qualms with the viability of fuel-cell technology but finds it odd that the company, arguably the leader in its space, expects only $70 million in revenues and no profits.

See more in the following video.

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Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On May 13, 2014, at 8:18 PM, popicon wrote:

    Not that Chris and Michael will ever read this, but they should because they may have it wrong. Amazon and Google have highly commoditized the market, this is true, and they're racing to the bottom. All clouds are not equal, and I'm not just talking about price. To lump Rackspace into that pile means that you may not be clear about the real differentiation between unmanaged clouds (Amazon + Google) and the Managed Cloud that Rackspace offers.

  • Report this Comment On May 14, 2014, at 2:17 AM, OliverAZ wrote:

    Why I'm avoiding Next time these clowns make general comments on the fuel cell industry, it would be nice to get their facts straight. And maybe they could say something insightful. Nothing foolish here, just bland and average comments. I'll go somewhere else to read a real analysis.

  • Report this Comment On May 14, 2014, at 10:28 AM, cruzn59 wrote:

    You guys got your RAX short pay-off. You said other companies were crushing RAX's pricing yet RAX had a good qtr. The another crushing report. When do you take your foot off of the throat and move on? You always seem to ride the few high fliers and short everything else. I can always count on an article from the Fool to come in after a kill and say, "Look Fools, there's more blood and the heart is barely beating, let's see if we can bankrupt another company, who cares if people's lives are at stake, we got our money!"

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Chris Hill

Full-time host of the Motley Fool Money radio show, MarketFoolery podcast, and other things. Part-time connoisseur of movies, basketball & fine bourbon.

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