Storm The Castle Stock Of The Day: Rackspace Hosting (RAX)

Trade-Ideas LLC identified Rackspace Hosting (RAX) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate
By TheStreet Wire ,

Trade-Ideas LLC identified

Rackspace Hosting

(

RAX

) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) 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 $53.4 million.
  • RAX has traded 1.1 million shares today.
  • RAX is trading at 2.83 times the normal volume for the stock at this time of day.
  • RAX crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on RAX:

Rackspace Hosting, Inc., through its subsidiaries, provides managed cloud services in the business information technology (IT) market worldwide. RAX has a PE ratio of 17. Currently there are 7 analysts that rate Rackspace Hosting a buy, 1 analyst rates it a sell, and 8 rate it a hold.

The average volume for Rackspace Hosting has been 2.2 million shares per day over the past 30 days. Rackspace Hosting has a market cap of $2.7 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.77 and a short float of 18.7% with 7.43 days to cover. Shares are down 13.1% year-to-date as of the close of trading on Monday.

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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 find that the stock has had a generally disappointing performance in the past year.

Highlights from the ratings report include:

  • RACKSPACE HOSTING INC reported significant earnings per share improvement 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 $0.86 versus $0.78 in the prior year. This year, the market expects an improvement in earnings ($1.08 versus $0.86).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet Software & Services industry. The net income increased by 77.5% when compared to the same quarter one year prior, rising from $27.50 million to $48.80 million.
  • Net operating cash flow has slightly increased to $156.20 million or 7.50% when compared to the same quarter last year. Despite an increase in cash flow, RACKSPACE HOSTING INC's cash flow growth rate is still lower than the industry average growth rate of 19.65%.
  • The gross profit margin for RACKSPACE HOSTING INC is rather high; currently it is at 65.18%. 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 9.41% is significantly lower than the industry average.
  • 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 44.11%, 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.

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