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Is Rackspace Hosting a Buy? (NYSE:RAX)
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We look at Rackspace Hosting, Inc (NYSE:RAX) [Trend Analysis] a company in the Technology industry which lately stock market players have been interested in, to assess if it provides value for investors considering buying or selling it. Currently Rackspace Hosting, Inc is trading at $43.10 after moving down -0.60% in the previous day of trading.
RAX is trading with a trailing 12 month P/E multiple of 55.26 and an estimated forward P/E multiple of 39.15. The stock has an estimated 5 year annual growth of 24.13% and a PEG multiple of 2.29.
Rather than the usual Price to Earnings (P/E) multiple method, we use a slightly different method to assess if Rackspace Hosting, Inc is potentially a value buy for investors, the PEG ratio (P/E to growth). This PEG multiple takes into account the expected long term growth in earnings of the company rather than merely the growth for one earnings period ahead as forward P/E does.
That is to say, P/E simply doesn’t account for the long term prospects of RAX. As a rule of thumb, a stock with a PEG of between 0 and 1 is usually considered to be underpriced, between 1 and 2 to be at fair value and over 2 to be overpriced. Based on the PEG ratio of RAX being 2.29, we consider Rackspace Hosting, Inc to likely be overpriced.
This analysis means that value buyers who do not currently hold Rackspace Hosting, Inc (NYSE:RAX) should not consider buying and investors currently holding the stock should consider selling.
The mean analyst 12 month target price for Rackspace Hosting, Inc (NYSE:RAX) is currently $52.63 or 22.11% above the current price. Additionally, the stock has been as high as $56.20 and as low as $28.80 in the last 52 weeks. Analysts are estimating that RAX will report earnings per share of $0.22 next quarter.