NEW YORK (TheStreet) -- Shares of Rackspace Hosting (RAX) plummeted 16.09% to $33.01 in after-hours trading Tuesday after the company announced it had ended its formal evaluation of strategic alternatives that would lead to another company acquiring Rackspace.
The managed cloud computing company "declared its commitment to remain independent" via a press release after the market closed. Rackspace also announced president Taylor Rhodes as CEO "to lead and drive its managed cloud strategy."
Rackspace disclosed in a regulatory filing on May 15 that several parties approached the company about partnership or acquisition possibilities.
Must Read: Warren Buffett's 25 Favorite Stocks
"We ran a thorough process under the direction of our board of directors, independent advisors, and a Strategic Transaction Committee of the Board," said Graham Weston, Rackspace co-founder and chairman. "In this process we talked to a diverse group of interested parties and entertained different proposals.
"None of these proposals were deemed to have as much value as the expected value of our standalone plan. We concluded that the company is best positioned to drive value for shareholders, customers and Rackers through the continued execution of its strategic plan to capitalize on the growing market opportunity for managed cloud services."
"The board also considered a share repurchase program and determined that, based on the company's significant opportunities, it is prudent to maintain flexibility at this time to ensure that the appropriate investments can be made to drive our strategy forward. We will continue to evaluate the benefits of implementing a buyback program in the future."
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 good cash flow from operations. 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:
- RAX's revenue growth trails the industry average of 44.3%. 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.
- Net operating cash flow has increased to $124.54 million or 17.26% when compared to the same quarter last year. Despite an increase in cash flow, RACKSPACE HOSTING INC's cash flow growth rate is still lower than the industry average growth rate of 42.00%.
- 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.
- RAX has underperformed the S&P 500 Index, declining 24.21% 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.
- You can view the full analysis from the report here: RAX Ratings Report
EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he and Stephanie Link think could be potentially HUGE winners. Click here to see the holdings for FREE.