Rackspace Hosting (RAX) Showing Signs Of Perilous Reversal Today

Trade-Ideas LLC identified Rackspace Hosting (RAX) as a "perilous reversal" (up big yesterday but down big today) candidate
By TheStreet Wire ,

Trade-Ideas LLC identified

Rackspace Hosting

(

RAX

) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Rackspace Hosting as such a stock due to the following factors:

  • RAX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $94.5 million.
  • RAX has traded 261,137 shares today.
  • RAX is down 3.2% today.
  • RAX was up 12% yesterday.

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More details on RAX:

Rackspace Hosting, Inc., through its subsidiaries, provides cloud computing services and managing Web-based IT systems for small and medium-sized businesses and large enterprises worldwide. RAX has a PE ratio of 44. Currently there are 9 analysts that rate Rackspace Hosting a buy, 2 analysts rate it a sell, and 5 rate it a hold.

The average volume for Rackspace Hosting has been 2.3 million shares per day over the past 30 days. Rackspace Hosting has a market cap of $3.9 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.41 and a short float of 9.5% with 3.28 days to cover. Shares are down 35.2% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Rackspace Hosting as a

hold

. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and revenue growth. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:

  • RACKSPACE HOSTING INC has improved earnings per share by 44.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, RACKSPACE HOSTING INC increased its bottom line by earning $0.78 versus $0.60 in the prior year. This year, the market expects an improvement in earnings ($0.84 versus $0.78).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Internet Software & Services industry average. The net income increased by 41.8% when compared to the same quarter one year prior, rising from $25.74 million to $36.50 million.
  • Although RAX's debt-to-equity ratio of 0.29 is very low, it is currently higher than that of the industry average. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.89 is somewhat weak and could be cause for future problems.
  • RAX's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 27.63%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • Net operating cash flow has decreased to $111.40 million or 11.18% 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.

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