Rackspace Hosting (RAX): Today's Weak On High Volume 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.

Trade-Ideas LLC identified Rackspace Hosting ( RAX) as a weak on high relative volume 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 $118.6 million.
  • RAX has traded 458,353 shares today.
  • RAX is trading at 3.17 times the normal volume for the stock at this time of day.
  • RAX is trading at a new low 3.00% below yesterday's close.

'Weak on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as material stock news, analyst downgrades, insider selling, selling from 'superinvestors,' or that hedge funds and traders are piling out of a stock ahead of a catalyst. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize (or avoid losses by trimming weak positions). In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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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 69. Currently there are 9 analysts that rate Rackspace Hosting a buy, 1 analyst rates it a sell, and 5 rate it a hold.

The average volume for Rackspace Hosting has been 1.2 million shares per day over the past 30 days. Rackspace Hosting has a market cap of $7.6 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.45 and a short float of 5.8% with 2.06 days to cover. Shares are up 13.5% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Rackspace Hosting as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, increase in net income and solid stock price performance. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Highlights from the ratings report include:
  • RAX's revenue growth has slightly outpaced the industry average of 5.9%. Since the same quarter one year prior, revenues rose by 14.0%. 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 0.14 is very low, it is currently higher than that of the industry average. To add to this, RAX has a quick ratio of 1.72, which demonstrates the ability of the company to cover short-term liquidity needs.
  • RACKSPACE HOSTING INC has improved earnings per share by 11.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, RACKSPACE HOSTING INC increased its bottom line by earning $0.78 versus $0.60 in the prior year. This year, the market expects an improvement in earnings ($0.93 versus $0.78).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Internet Software & Services industry average. The net income increased by 11.6% when compared to the same quarter one year prior, going from $25.45 million to $28.40 million.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 102.16% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.

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