This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

360 Degrees of Rackable

Editor's Note: In this edition of "360 Degrees," RealMoney commentators take a look at Rackable Systems (RACK), which plummeted like a rock after its earnings report last week from $34.90 to $21. The momentum money has fled, but do its fundamentals make it worth picking up off the garbage heap?

TheStreet.com has always believed that offering a wide variety of opinions and viewpoints -- rather than a monolithic "house view" -- helps readers make better-informed investment decisions. In that spirit, we bring you "360 Degrees."

"360 Degrees" is a feature that takes advantage of our varied stable of contributors to RealMoney, who offer analysis of stocks and the markets from all angles -- fundamental vs. technical, short-term trader vs. long-term investor.

Click on the following link for information about a free trial to RealMoney.


Pro-RACK, by Bob Faulkner

Rackable has lost 60% of its market value since the end of April, and roughly half of that loss came in the week since the company reported its second-quarter results July 27. The quarter was pretty good, but it was overshadowed by tepid guidance that led to a high-speed exodus by the hot-money crowd. Given the concern over the slowing economy, as well as a fair amount of mixed messages from other companies, few have been willing to step up to the name.

The fundamental questions: Are the fundamentals deteriorating, and is the bloom is off the rose? From my perspective, the answer is no.

There's nothing in the second-quarter results to suggest the company isn't executing according to plan. Both revenue and EPS were above street consensus (momentum players need that). While gross margins were essentially flat and at the high end of expectations, operating margins deteriorated a bit (-220 bps) as the company scaled up to support higher growth.

Three quarters ago, Rackable indicated it would double its direct-sales force; that target was achieved. In addition, the company launched several R&D projects to support and enhance new servers. The balance sheet strengthened nicely as well. Cash from operations was approximately $6 million, and the cash account increased $7 million. The company's accounts receivable declined $2 million, pushing days of sales outstanding down five to 47 days. Inventory declined $13 million, with days of inventory falling 21 days to 62.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 +2.54 0.14%
NASDAQ 4,095.5160 +9.2910 0.23%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs