Rackspace (RAX) is a stock that’s great yet always too high to buy. I track the stock and have had it at the top of my wish list before, but it never gets to be fairly priced. It’s always too high, yet keeps going higher.
One Year Chart
Here’s this quarter’s view of RAX’s one-year chart. The P/E of 62 is high but that thing was 93 last quarter (whew). The big thing I see is profit growth has slowed in each of the last four quarters from 100% to 36%. 17% growth is expected next quarter, and I don’t expect RAX to beat, its hasn’t done so since 4QtrsAgo.
I looked into that dip (opportunity) you see in July. The stock had a P/E of around 64 with 50% profit growth expected the next two quarters. This outlook isn’t nearly as rosey.
Fair Value
I think RAX is a stock to buy at 50 times earnings, and would have to drop to $54 to get there. That’s below the recent support level. I doubt that will happen this quarter.
Sharek’s Take
RAX is one of the best growth stocks on the market, but growth is slowing a bit even though the P/E stays high. The best thing to do it wait for a big correction like the one we had last summer. Check out the Earnings Table, lots of lowering of estimates a penny here, penny there.
View the Earnings Table here.View the Ten Year Chart here.
