Water-Logged And Getting Wetter: Rackspace Hosting (RAX)
Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.
Trade-Ideas LLC identified
(
) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) 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 $82.5 million.
- RAX has traded 833,451 shares today.
- RAX traded in a range 265.2% of the normal price range with a price range of $2.87.
- RAX traded below its daily resistance level (quality: 11 days, meaning that the stock is crossing a resistance level set by the last 11 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).
Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.
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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 65.8. Currently there are 10 analysts that rate Rackspace Hosting a buy, 2 analysts rate it a sell, and 4 rate it a hold.
The average volume for Rackspace Hosting has been 1.3 million shares per day over the past 30 days. Rackspace Hosting has a market cap of $7.3 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.57 and a short float of 9.4% with 4.40 days to cover. Shares are up 8.4% year-to-date as of the close of trading on Tuesday.
Analysis:
rates Rackspace Hosting as a
. 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, robust revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.
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. 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 ($0.92 versus $0.78).
- 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 $20.80 million to $36.92 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 18.6%. Since the same quarter one year prior, revenues rose by 15.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Although RAX's debt-to-equity ratio of 0.15 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 1.34, which illustrates the ability to avoid short-term cash problems.
- Net operating cash flow has increased to $150.89 million or 37.77% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 26.61%.
- You can view the full Rackspace Hosting Ratings Report.
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