Now a look at the competition. In an attempt to make an ‘apples to apples’ comparison I pulled data for two companies operating in the cloud space with market capitalizations between 1 and 15 billion, Rackspace currently has a market cap of 7.5 billion.
Citrix Systems, Inc. (NASDAQ:CTXS)
Citrix has a market cap of 13.2 billion and currently trades around 71 dollars per share. Its current P/E ratio is 38.04, with a forward looking P/E of 19.76. As with Rackspace, both ratios are rather high, meaning that the company will live and die with earnings growth, or a change in analyst sentiment toward the company.
Operating margins are strong at 15.7%, and the company seems to be managing its expenses well. Year over year revenue growth is not quite as attractive as Rackspace, though, with Citrix coming in at 19.5%, which could be a sign that the company is losing market share to competitors.
Citrix has a very good PEG ratio in comparison to the industry at 1.35, indicating that the stock could be relatively undervalued; however, the chart indicates that the market isn’t quite as excited about the companys future prospects as it once was.
Red Hat, Inc. (NYSE:RHT)
Red Hat has a market cap of 9.7 billion and trades around 50 dollars per share. The current P/E ratio is 67.82 with a leading P/E of 35.94. Again, the P/E ratios are high making the stock volatile.
Like Rackspace and Citrix, Red Hat has a healthy operating margin at 16.12%. Where the company differs is in its earnings--year over year earnings are down roughly 10%, which is probably why the momentum in the market has shifted.
In addition, the PEG ratio isn’t nearly as comforting as the previous companies discussed in this article. The PEG for Red Hat is 2.77, indicating that the stock may be a bit overcooked given the slower earnings.
In conclusion, Rackspace and Citrix edge out Red Hat from a fundamental standpoint; however, Rackspace tops Citrix on the technical side. Ultimately your investment decisions will come down to the level of confidence you have in the industry as a whole, and where the company stands relative to its competitors. Overall, I like the pullback and think there is a good opportunity to buy Rackspace here.
For more information on cloud computing visit http://beta.fool.com/sofjay/2013/02/21/information-the-worlds-most-valuable-commodity/25228/
The article Rackspace Makes a Move for Market Share: Are You a Buyer? originally appeared on Fool.com and is written by Brian Jordan.
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