Trade-Ideas: Rackspace Hosting (RAX) Is Today's Post-Market Leader Stock

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 Rackspace Hosting ( RAX) as a post-market leader 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 $134.1 million.
  • RAX is up 4.7% today from today's close.

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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 50.2. Currently there are 7 analysts that rate Rackspace Hosting a buy, 2 analysts rate it a sell, and 7 rate it a hold.

The average volume for Rackspace Hosting has been 3.0 million shares per day over the past 30 days. Rackspace Hosting has a market cap of $4.5 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.44 and a short float of 9.2% with 3.76 days to cover. Shares are down 20.2% year-to-date as of the close of trading on Friday.

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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 robust revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and disappointing return on equity.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 19.9%. Since the same quarter one year prior, revenues rose by 17.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • Although RAX's debt-to-equity ratio of 0.07 is very low, it is currently higher than that of the industry average. To add to this, RAX has a quick ratio of 1.69, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Internet Software & Services industry average. The net income increased by 0.4% when compared to the same quarter one year prior, going from $22.37 million to $22.45 million.
  • 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 33.13%, which is also worse than the performance of the S&P 500 Index. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, RAX is still more expensive than most of the other companies in its industry.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Internet Software & Services industry and the overall market, RACKSPACE HOSTING INC's return on equity is below that of both the industry average and the S&P 500.

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