NEW YORK (TheStreet) -- Shares of Rackspace Hosting Inc. (RAX) are higher by 3.65% to $32.98 at the start of trading on Tuesday, following a Wall Street Journal report saying the activist investor Blue Harbour Group LP has purchased a 6.4% stake in the company.
The investor's stake comes as the cloud-computing company executes a review of its strategic options, the Journal added.
Blue Harbour believes Rackspace has other options besides a sale to pull itself out of a stock slump, and sources told the Journal the firm would support a buyback and other plans.
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Separately, TheStreet Ratings team rates RACKSPACE HOSTING INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate RACKSPACE HOSTING INC (RAX) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. 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 analysis by TheStreet Ratings Team goes as follows:
- 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.
- You can view the full analysis from the report here: RAX Ratings Report
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