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"We rate RACKSPACE HOSTING INC (RAX) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in net income, robust revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."
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Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet Software & Services industry. The net income increased by 57.8% when compared to the same quarter one year prior, rising from $16.31 million to $25.74 million.
- RAX's revenue growth trails the industry average of 28.6%. Since the same quarter one year prior, revenues rose by 18.3%. 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 0.08 is very low, it is currently higher than that of the industry average. To add to this, RAX has a quick ratio of 1.70, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for RACKSPACE HOSTING INC is currently very high, coming in at 70.43%. 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 5.59% significantly trails the industry average.
- Net operating cash flow has slightly increased to $125.43 million or 9.49% 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 26.35%.
- You can view the full analysis from the report here: RAX Ratings Report