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 $118.1 million.
  • RAX has traded 2.6 million shares today.
  • RAX is down 3.1% today.
  • RAX was up 9.8% 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 41. Currently there are 8 analysts that rate Rackspace Hosting a buy, 2 analysts rate it a sell, and 6 rate it a hold.

The average volume for Rackspace Hosting has been 2.4 million shares per day over the past 30 days. Rackspace Hosting has a market cap of $4.1 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.52 and a short float of 11.3% with 2.95 days to cover. Shares are down 32.8% year-to-date as of the close of trading on Wednesday.

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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 revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and weak operating cash flow.

Highlights from the ratings report include:

  • RAX's revenue growth has slightly outpaced the industry average of 6.8%. Since the same quarter one year prior, revenues rose by 10.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Although RAX's debt-to-equity ratio of 0.14 is very low, it is currently higher than that of the industry average. To add to this, RAX has a quick ratio of 1.64, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for RACKSPACE HOSTING INC is rather high; currently it is at 66.51%. 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 5.96% is significantly lower than the industry average.
  • Net operating cash flow has declined marginally to $122.90 million or 1.31% 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.
  • RAX has underperformed the S&P 500 Index, declining 5.38% 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.

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