A Big Upgrade for Rackspace Hosting

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

After spending much of the past year at a mediocre three-star rank, Rackspace Hosting (NYSE: RAX  ) has impressed enough top-performing members of our 170,000-strong Motley Fool CAPS community to climb up to four stars. A total of 419 members have given their opinion on the virtual IT firm, with many of them offering analysis and commentary explaining the recent optimism.

Similar to other companies exposed to the fast-growing cloud-computing space, Rackspace sports a lofty earnings multiple that has many value-minded investors balking. Its price-to-earnings ratio sits in the high double digits, still below the triple-digit wonder (NYSE: CRM  ) and VMware's (NYSE: VMW  ) 146, but still many times the level of noncloud peers.

But the potential growth of cloud computing has some CAPS members looking past the extreme valuation of the hosting and cloud computing company and seeing long-term potential as the firm continues to show strong results. Rackspace pulled in a solid second quarter with revenue up 23% and earnings growth of 60%. With strong trends in adding servers and customers, and big growth in revenue in cloud computing, the company remains bullish on the second half of the year.

The company isn't alone in seeing big things ahead in cloud computing, which research firm IDC expects will attract more than $44 billion in global IT spending by 2013. Verizon Communications (NYSE: VZ  ) recently launched a service targeted toward small-to-medium-sized businesses, which will go up against competing services from (Nasdaq: AMZN  ) and Rackspace. And the frenzied bidding war that recently took place between Hewlett-Packard (NYSE: HPQ  ) and Dell (Nasdaq: DELL  ) over 3PAR demonstrates the desire by large companies to pick up assets in the space. Despite the increasing competition, some investors believe Rackspace's tenure in the market and attention to customer service will help it continue winning business. Together with the improving efficiency in its business, more CAPS members are banking on a good future for the company despite the oversized valuation today.

Do you think Rackspace Hosting deserves its raised status? Add your thoughts in the comments box below on this page, or head over to CAPS to rate the company and check out all the information and opinions the community offers, absolutely free.

Always looking ahead, the Motley Fool Rule Breakers service is picking the next generation's big winners today. To see what other rule-breaking stocks David Gardner is recommending now, take a free 30-day trial.

Fool contributor Dave Mock recently upgraded his loafers with a new coat of polish. He owns no shares of companies mentioned here., Rackspace Hosting, and VMware are Rule Breakers picks. is a Stock Advisor recommendation.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool's disclosure policy can rub its tummy and pat its head at the same time.

Read/Post Comments (0) | Recommend This Article (10)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

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: 1314916, ~/Articles/ArticleHandler.aspx, 10/27/2016 10:57:35 AM

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...

Today's Market

updated Moments ago Sponsored by:
DOW 18,181.05 -18.28 -0.10%
S&P 500 2,135.58 -3.85 -0.18%
NASD 5,234.35 -15.92 -0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 10:42 AM
AMZN $820.64 Down -1.95 -0.24% CAPS Rating: ****
CRM $75.49 Up +0.54 +0.72% CAPS Rating: ***
DELL.DL $0.00 Down +0.00 +0.00%
Dell CAPS Rating: *
HPQ $13.93 Up +0.02 +0.11%
HP CAPS Rating: ***
RAX $31.93 Up +0.01 +0.03%
Rackspace Hosting CAPS Rating: ***
VMW $76.74 Up +3.43 +4.68%
VMware CAPS Rating: ***
VZ $48.05 Up +0.42 +0.88%
Verizon Communicat… CAPS Rating: ****