Can Rackable Try Passing Itself as a Value Stock?
Rackable Systems (RACK-NASDAQ) has backed itself into a corner. The company took the server space by storm in its niche, but what happens when a hi-flyer and hi-beta stock starts to miss and then becomes mediocre? Massive haircuts. And if…
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
Rackable Systems (RACK-NASDAQ) has backed itself into a corner. The company took the server space by storm in its niche, but what happens when a hi-flyer and hi-beta stock starts to miss and then becomes mediocre? Massive haircuts. And if you name is Rackable, racks happen too. It posted EPS $0.19 on non-GAAP and revenues were $106.9 million. Today’s numbers didn’t matter because they had already warned two weeks ago.
FOR 2007 PROJECTIONS:
Revenue is projected to be in the range of $450-$525 million ($490 million is consensus); up from 2006 of $360.4 million. Non-GAAP diluted net income per share is projected to be $0.75-$ 1.05 per share ($1.05 EPS is the consensus estimate; compared to $0.94 in 2006. GAAP diluted net income (loss) per share is projected to be $ (0.10) – $ 0.20 per share. GAAP gross margin is projected to be in the range of 16.8%-21.0%; Non-GAAP gross margin is projected to be in the range of 18%-22%, compared to 22.4% in 2006.
So the revenue growth is expected to be up roughly 30% at the mid-point, with a mid-point EPS projection that would actually be under 2006 and on lower margins. High growth and high beta is only fun on the way up. Shares closed up over 6% at $20.34 on the day in hopes that today wouldn’t matter, but shares are giving up half of those gains to about $19.70 in after-hours trading. The 52-week range is $18.34 to $56.00, so you can see the air has come out of the balloon. Its market cap was $571 million, so at 1.2 times forward revenues and 22 times forward earnings can you call a recently former high-flyer a value stock? Doubtfully so, but you can expect some will try soon.
Jon C. Ogg
Febrauary 1, 2007
Contact [email protected] for any questions or corrections.
Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.
McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.
His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.
A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.
TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.
McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.
