Rackspace Shares Popped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Web-hosting company Rackspace Hosting (NYS: RAX) climbed 10% on Tuesday after its quarterly results topped Wall Street expectations.

So what: Rackspace's fourth-quarter beat -- adjusted EBITDA of $102 million versus the consensus of $94.5 million -- shows that demand for the company's cost-effective "cloud" solutions remains particularly strong. The stock is even hitting a new three-year high on the news, suggesting that Mr. Market expects the operating momentum to continue.

Now what: After having crossed $1 billion in sales in 2011, management also sees the same type of growth in 2012. "We are on pace to achieve another billion in a fraction of the time that it took our company to grow to its first billion," said CEO Lanham Napier. Buying into a hot, high P/E stock isn't exactly ideal, but given the undeniable tailwinds working in its favor, Rackspace might be one of those plays that will always seem expensive.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Rackspace. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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