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Rackspace Hosting Inc. Stock Hold Recommendation Reiterated (RAX)

NEW YORK (TheStreet) -- Rackspace Hosting (NYSE:RAX) has been reiterated by TheStreet Ratings as a hold with a ratings score of C+. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, robust revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and disappointing return on equity.

Highlights from the ratings report include:

  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Internet Software & Services industry average. The net income increased by 17.6% when compared to the same quarter one year prior, going from $23.18 million to $27.26 million.
  • RAX's revenue growth trails the industry average of 31.4%. Since the same quarter one year prior, revenues rose by 20.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The gross profit margin for RACKSPACE HOSTING INC is rather high; currently it is at 68.60%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, RAX's net profit margin of 7.52% significantly trails the industry average.
  • RAX has underperformed the S&P 500 Index, declining 21.38% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Internet Software & Services industry and the overall market, RACKSPACE HOSTING INC's return on equity is below that of both the industry average and the S&P 500.

Rackspace Hosting, Inc., through its subsidiaries, provides cloud computing services, managing Web-based IT systems for small and medium-sized businesses, and large enterprises worldwide. Rackspace Hosting has a market cap of $5.2 billion and is part of the technology sector and computer software & services industry. The company has a P/E ratio of 45.00, above the S&P 500 P/E ratio of 18.00. Shares are down 48.7% year to date as of the close of trading on Thursday.

You can view the full Rackspace Hosting Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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