Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model. NEW YORK ( TheStreet) -- Rackspace Hosting (NYSE: RAX) has been reiterated by TheStreet Ratings as a buy with a ratings score of B-. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, robust revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.
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- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Internet Software & Services industry average. The net income increased by 17.6% when compared to the same quarter one year prior, going from $23.18 million to $27.26 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 29.8%. Since the same quarter one year prior, revenues rose by 20.2%. 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 0.12 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 1.37, which illustrates the ability to avoid short-term cash problems.
- Net operating cash flow has significantly increased by 62.77% to $113.79 million when compared to the same quarter last year. In addition, RACKSPACE HOSTING INC has also vastly surpassed the industry average cash flow growth rate of -2.38%.
- The gross profit margin for RACKSPACE HOSTING INC is rather high; currently it is at 68.60%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, RAX's net profit margin of 7.52% significantly trails the industry average.
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