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 Amazon.com, 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.

3 stock picks to ride America's energy bonanza
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, The Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You to Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


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

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • 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.

    http://www.rackspace.com/blog/the-cloud-price-war-versus-the...

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

    Why I'm avoiding fool.com. 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!"

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2956181, ~/Articles/ArticleHandler.aspx, 10/24/2014 9:33:05 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement