NEW YORK (TheStreet) -- Shares of Rackspace Hosting Inc. (RAX - Get Report) are higher by 9.44% to $30.13 on Tuesday after the company announced after yesterday's close that net earnings and revenue were up for the 2014 first quarter.
While the open cloud company said net income grew 22.3% over the 2013 fourth quarter to $25 million, it was lower than the net income of $27 million for the 2013 first quarter.
TheStreet Ratings team rates RACKSPACE HOSTING INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate RACKSPACE HOSTING INC (RAX) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
Net revenue for the 2014 first quarter was higher than the previous year's first quarter by 16% to $421 million from $362 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 21.3%. Since the same quarter one year prior, revenues rose by 15.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Although RAX's debt-to-equity ratio of 0.06 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.48, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for RACKSPACE HOSTING INC is rather high; currently it is at 67.21%. Regardless of RAX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, RAX's net profit margin of 5.09% is significantly lower than the industry average.
- Net operating cash flow has declined marginally to $109.52 million or 8.89% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 49.01%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 33.33% compared to the year-earlier quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, RAX is still more expensive than most of the other companies in its industry.
- You can view the full analysis from the report here: RAX Ratings Report
WATCH: More market update videos on TheStreet TV | More videos from Kori Hale
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts