Rapid7 Inc Up 86% This Year But No Stopping This Cybersecurity Stock

Rapid7 Inc Up 86% This Year and It Looks Like NASDAQ:RPD Will Rise More

Rapid7 Inc: Strong Growth as Cybersecurity Threats Ramp Up

As the world continues to expand its technology adoption, the threat of cyberattacks and network intrusions will likely accelerate, whether domestic or foreign.

And as computer networks become more integrated worldwide, the demand for cybersecurity solutions will rise.

To play this growth segment, an intriguing mid-cap cybersecurity provider that offers above-average long-term prospects is Rapid7 Inc (NASDAQ:RPD).

The company provides its proprietary “Insight” cloud platform to clients around the world to protect their networks and critical data from cyberattacks.

Its client base is diverse, comprising more than 7,800 organizations in over 130 countries, including more than 50% of the Fortune 100 companies. (Source: “2018 Annual Report,” Rapid7 Inc, last accessed June 28, 2019.)

Rapid7 stock has staged a strong rally from its December lows, easily destroying the comparative gains by the Nasdaq.

RPD stock traded at a 52-week high of $58.74 on June 21, breaking out from a tight sideways channel on rising relative strength. The stock has more than doubled from its range low of $26.27, and is up a staggering 86% this year.

Chart courtesy of StockCharts.com

Over the past six months, insiders have bought a net 221,778 common shares. Insiders buying a lot of shares is always a good sign of confidence in a company. (Source: Rapid7, Inc. (RPD),” Yahoo! Finance, last accessed June 28, 2019.)

Strong Revenue Acceleration and Profitability Supports Bull Case for RPD Stock

Rapid7 has been delivering strong revenue growth and it is moving toward profitability this year.

In a positive trend, Rapid7 has grown its revenues in the past five consecutive years, as the below table shows. The compound annual growth rate (CAGR) for this time frame is 33.5%.

Fiscal Year Revenue (Millions) Growth
2014 $76.9
2015 $110.5 43.8%
2016 $157.4 42.4%
2017 $200.9 27.6%
2018 $244.1 21.5%

(Source: “Rapid7 Inc.MarketWatch, last accessed June 28, 2019.)

But while the company’s revenue growth rate has moderated over the past two years, Rapid7 is expected to continue to deliver strong growth.

For 2019, the company is estimated to ramp up its revenues by 29.1% to $315.2 million, and by another 23% to $387.6 million for 2020. (Source: Yahoo! Finance, op. cit)

In my view, the company’s growth rate is impressive and the RPD stock price deserves to be higher.

Rapid7 is still producing negative earnings before interest, taxes, depreciation, and amortization (EBITDA), but the company is set to be profitable this year.

Fiscal Year EBITDA (Millions)
2014 -$25.0
2015 -$39.4
2016 -$41.9
2017 -$41.0
2018 -$41.9

(Source: MarketWatch, op. cit.)

The fact that Rapid7’s generally accepted accounting principles (GAAP) earnings per share (EPS) losses have fallen to the dollar-per-share range after much bigger losses in 2014 and 2015 is positive.

Fiscal Year GAAP Diluted EPS Growth
2014 -$2.19
2015 -$4.00 -82.4%
2016 -$1.19 70.2%
2017 -$1.06 10.9%
2018 -$1.20 -12.8%

(Source: Ibid.)

Rapid7 is estimated to turn profitable on an adjusted basis this year, diluted EPS of $0.05 per diluted share, a major improvement from its diluted EPS loss of $1.20 in 2018.

The news gets better as the company is predicted to grow its EPS to $0.39 in 2020. (Source: Yahoo! Finance, op. cit.)

Rapid7 produced positive free cash flow (FCF) in 2016 and 2017, prior to turning back negative in 2018. The move to profitability should also mean positive FCF.

Fiscal Year FCF (Millions) Growth
2014 -$10.4
2015 -$6.0 42.1%
2016 $4.6 176.3%
2017 $8.5 83.4%
2018 -$6.8 -179.8%

(Source: MarketWatch, op. cit)

Analyst Take

It is clear that Rapid7 Inc is on the right path as far as the fundamentals go. Given the strong prospects for the cybersecurity market, I expect the company’s financial growth to continue, which would, in turn, drive the RPD stock price higher.

But given that Rapid7 stock has made a major move, look at price dips as opportunities.