Stock Analysis

Rackspace Technology, Inc. (NASDAQ:RXT): Is Breakeven Near?

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NasdaqGS:RXT
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Rackspace Technology, Inc. (NASDAQ:RXT) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. Rackspace Technology, Inc. operates as a multi cloud technology services company worldwide. The company’s loss has recently broadened since it announced a US$102m loss in the full financial year, compared to the latest trailing-twelve-month loss of US$229m, moving it further away from breakeven. Many investors are wondering about the rate at which Rackspace Technology will turn a profit, with the big question being “when will the company breakeven?” In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.

View our latest analysis for Rackspace Technology

Rackspace Technology is bordering on breakeven, according to the 7 American IT analysts. They anticipate the company to incur a final loss in 2020, before generating positive profits of US$25m in 2021. Therefore, the company is expected to breakeven just over a year from now. In order to meet this breakeven date, we calculated the rate at which the company must grow year-on-year. It turns out an average annual growth rate of 112% is expected, which signals high confidence from analysts. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
NasdaqGS:RXT Earnings Per Share Growth December 10th 2020

We're not going to go through company-specific developments for Rackspace Technology given that this is a high-level summary, however, take into account that generally a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.

Before we wrap up, there’s one issue worth mentioning. Rackspace Technology currently has a debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in this case, the company has significantly overshot. A higher level of debt requires more stringent capital management which increases the risk in investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on Rackspace Technology, so if you are interested in understanding the company at a deeper level, take a look at Rackspace Technology's company page on Simply Wall St. We've also put together a list of important aspects you should look at:

  1. Valuation: What is Rackspace Technology worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Rackspace Technology is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Rackspace Technology’s board and the CEO’s background.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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