Rackspace Hosting (RAX) Marked As A Barbarian At The Gate

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 "barbarian at the gate" (strong stocks crossing above resistance 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 $163.6 million.
  • RAX has traded 2.9 million shares today.
  • RAX traded in a range 315.8% of the normal price range with a price range of $3.42.
  • RAX traded above its daily resistance level (quality: 216 days, meaning that the stock is crossing a resistance level set by the last 216 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' 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 positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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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 62.7. 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 $5.6 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 9.2% with 2.56 days to cover. Shares are down 1.5% year-to-date as of the close of trading on Friday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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 has underperformed the S&P 500 Index, declining 21.35% 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.
  • 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.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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