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Rackspace Hosting: I Just Can't See It At These Levels, But That's My Opinion.

|Includes:Rackspace Hosting, Inc. (RAX)

Rackspace Hosting, Inc. (RAX-NYSE) is currently at about $62, or about seven bucks off its 52-week high of about $69. It's low was about $39; so, the mid-point would be about $54. With a trailing P/E Ratio of well over 50X, my question is why would I want to own this stock?

We're talking about a company that should grow sales at about 25% per year, or I'm guessing about $1.25 Billion by the end of 2012, with about that same figure in total assets. Net profit margin has been coming in at about 8.0%, which should deliver my EPS estimate of about $0.75 per share. There are about 135 million shares outstanding.

Using the Dividend Discount Model, and assuming cash flow per Share of about $0.75, after capital spending, and a 2.0% difference between its cost of capital minus its growth rate: You could project a target price of $37.50 per share.

I'm simply not buying into the argument that this stock should trade at these price levels, but that's my take on it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: RAX