IPO investors who didn't like Rackspace ( RAX) should take a close look at its rival Consonus Technologies.

It may make them feel better about Rackspace.

Consonus was expected to debut on the Nasdaq two weeks ago, but a turbulent stock market and a rocky listing for rival Rackspace gave underwriters pause. The company is now looking to list its stock in the next couple of weeks with the ticker DCTI.

It's been a long road for Consonus. The Cary, N.C.-based company first filed for an IPO back in May 2007, aiming for a fall offering of 6 million shares priced between $7 and $9 each. In June 2008, it revised its offering down to 3 million shares priced between $8 and $10. The overall amount raised in the offering would be reduced to a midpoint of $27 million from the originally hoped-for $48 million.

Like Rackspace, Consonus is in a thriving area. The market for Web-hosting of IT services is seeing strong growth, as is the technology consulting that Consonus also offers. The breadth of Consonus' services is broad enough to compete with giants like IBM ( IBM), Hewlett-Packard ( HPQ) and EDS ( EDS).

Unlike those giants, Consonus focuses on companies with 300 to 2,000 people as well as universities. Its clients include shipping company Maersk, software company Red Hat ( RHT), Blue Cross Blue Shield Association and Johns Hopkins University.

Over the past year, while Consonus has languished in the IPO queue, its valuation seems to have shrunk dramatically. Last September, Consonus said an offering would leave 10.5 million shares outstanding. At the proposed $8 a share, that's a valuation of $84 million. After a reverse stock split in January, Consonus will have only 6.2 million shares outstanding after an IPO. At $9 a share, the company is now valued at $55 million.

Consonus' value has been marked down by one-third in nine months. Underwriters have essentially put one of K-Mart's flashing blue lights on top of this IPO.

I bet investors are glad they didn't go for this stock a year ago. Should they go for it now?

There are a few things they should consider first:

Let's start with how dilutive this IPO is. Consonus is offering 3 million shares, which is nearly as many shares as investors already hold. That's an unusually large float -- nearly 50%. (Rackspace's offering was equal to 13% of its outstanding shares, and some people thought that was big.)

Measuring Consonus' proposed valuation against sales, it looks cheap. The $55 million implied in its prospectus is a bit more than half the $101 million in revenue it brought in last year.

But valuing Consonus against earnings is tougher. Consonus lost $4.9 million in 2007, following a loss of $287,000 in 2006.

And it had an operating loss of $611,000 last year.

So far this year, that trend hasn't showed signs of reversing. The company's loss ballooned to $7.1 million in the March quarter from a $1.7 million loss a year earlier. And revenue grew only 4.7% to $25 million in the quarter.

One might wonder why a company losing money would brave this hostile IPO market, even it means slashing its value. It suggests desperation. Consider that executives will receive meaty bonuses (including the forgiveness of a loan in default) once the deal is done.

The company itself also needs the money. Some $12 million of the proceeds will go to pay off debt, which stood at $44.5 million on March 31. The company has been paying more than $1 million a quarter in interest expenses.

Some of its debt agreements prevent Consonus from raising more debt and buying new companies. A January 2007 merger between Consonus Acquisition and Strategic Technologies has been hampered by the insistence of a creditor, Avnet ( AVT), that the assets, businesses, communications and management decisions of the two subsidiaries be segregated until it's paid pack in full.

You'd think a company dressing up to go public would do all it could to integrate a recent merger and boost profitability. But Consonus has no such luxury. Even worse, for several straight quarters the company has failed to be in compliance with Avnet's terms, forcing the debt agreement to be amended, restructured and re-amended.

In the process, the date after which Consonus will be required by the Avnet debt agreements to sell real property has been pushed back to Sept. 30. That may explain why the company is itching to go public and repay Avnet some of its money.

If those red flags aren't enough, here are a few more: Consonus was forced to restate its financial statement for the first three quarters of 2007. It's had two major service outages in the past four months, one that led to costly customer credits. And its controlling shareholder is in a dispute with management over that meaty IPO bonus and that defaulted loan.

Which brings us to executive compensation. Again, a comparison with Rackspace is illuminating. Rackspace is a company with $362 million in revenue and profit of $18 million. Its CEO had a base salary of $265,000 and a total compensation of $570,000.

Consonus, remember, had less than a third of Rackspace's revenue and no profit. But its CEO drew a base salary of $216,000 (it's bumping up to $245,000 this year) and total compensation of $822,000. One of these CEOs deserves that money a little more than the other.

The portrait drawn of Consonus by its own prospectus is of a money-losing, debt-laden start-up with a recent history of compliance problems regarding both accounting and debt covenants -- not to mention overpaid managers. But at least it's been marked down, which may just get it through the IPO gates.

Rackspace, the stronger company by far in nearly every respect, fell 20% on its first day. Just think how this grouchy IPO market will greet Consonus.

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