Why We're Avoiding Rackspace and Plug Power

Shares of Rackspace Hosting and Plug Power climbed today, but should investors look at the bigger picture? In today's "Movers and Shakers" segment of Investor Beat, Chris Hill and Motley Fool analyst Mike Olsen discuss these two stocks.

Rackspace is up 8.9% after better-than-expected first-quarter results, with a 16% revenue increase and a 5% boost to profits. But Mike argues that cloud-based server hosting is a horribly commoditized market, with companies such as Amazon.com, Google, and Microsoft cutting their prices up to 85% in the last quarter. Mike questions Rackspace's ability to maintain consistent revenue in such an environment, but he sees a bigger issue that may be indicative of Rackspace's own feelings about its future: It hasn't purchased any new shares, even though the price has been nearly cut in half over the past 52 weeks. 

Chris and Mike also dive into Plug Power's recent uptick, one day before an expected earnings loss. Mike has qualms with the viability of fuel-cell technology but finds it odd that the company, arguably the leader in its space, expects only $70 million in revenues and no profits.

See more in the following video.

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The article Why We're Avoiding Rackspace and Plug Power originally appeared on Fool.com.

Chris Hill owns shares of Amazon.com. Michael Olsen, CFA, owns shares of Microsoft. The Motley Fool recommends Amazon.com, Google (A and C shares), and Rackspace Hosting and owns shares of Amazon.com, Google (A and C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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