Why Rackspace Is Still A Buy Post-OpenStack

Seen in conventional terms Rackspace (RAX) should be a sell right now. It's best known for OpenStack,an open source cloud infrastructure it began working on with NASA a few years ago. But this summer it "lost control" of that software, placing it into a new OpenStack Foundation.

At the same time Rackspace, whose business is web hosting, was launching its own services under OpenStack, competitors like Hewlett-Packard (HP) and Dell (DELL) were announcing plans to launch their own cloud networks, also under OpenStack.

So how has the stock responded? Over the last three months it's up 52%, and currently trades at over $60/share. Since there have been no hard earnings numbers to go on, it now has a PE ratio of over 100. How is this possible? Former Sun open source guru Simon Phipps, now writing for Infoworld, offers an answer. He says that too many people mistake the "free" in "free software" for "zero price," and no pricing power generally...