Rapid7 is the IBD Stock of the Day as the cybersecurity firm trades in a cup base ahead of first-quarter earnings. RPD stock has gained 45% in 2023 amid speculation it could be sold, perhaps to a private equity firm.
Earnings for RPD stock are due May 9. One strategy around earnings would use call options. That allows investors to buy stocks at a predetermined price.
Boston-based Rapid7 specializes in vulnerability management services. It sells software tools and services that help businesses assess computer network vulnerability to hacking attacks.
In a crowded market, Rapid7 competes with Tenable, Splunk, Qualys and Palo Alto Networks.
RPD Stock: Company On The Block?
Rapid7 stock popped Feb. 1 on reports it hired Goldman Sachs to explore a company sale. Its shares retreated when speculation cooled. But RPD stock has formed a cup base. In addition, Rapid7 stock holds an entry point of 55.71.
On the stock market today, shares in Rapid7 rose 4.2% to 49.54. RPD stock has advanced 45% in 2023 amid speculation of a sale.
Meanwhile, private equity firms have been buyers in the cybersecurity market.
Thoma Bravo in October acquired ForgeRock for about $2.3 billion. Earlier, Thoma Bravo acquired Ping Identity Holdings for $2.8 billion. Thoma Bravo also has acquired cybersecurity firms SailPoint Technology, Proofpoint, Sophos and Barracuda.
Also, private-equity firm Permira in 2022 purchased Mimecast for $5.8 billion. Vista Partners acquired KnowBe4 in October for $4.6 billion.
Rapid7 Stock: Shifting From Vulnerability Management
Rapid7's vulnerability management tools analyze huge volumes of network data. They identify security risk for "endpoint" devices like mobile phones that access corporate networks.
Further, Rapid7 gets about 40% to 50% of revenue from vulnerability management, analysts say. The company also has ramped up cloud computing security services that monitor applications.
Key to Rapid7's valuation, analysts say, is growth in subscription services that boost annual recurring revenue.
"Blending more commoditized vulnerability management with next-gen security to provide a more holistic picture of security is an important selling motion and wise strategic way to get the most of past investments," Raymond James analyst Adam Tindle said in a recent note to clients.
Cybersecurity Group Ranking
In March, Rapid7 acquired Minerva Labs for $38 million in cash and stock. Minerva Labs provides anti-evasion and ransomware prevention technologies. Rapid7 plans to add Minerva's capabilities to its managed detection and response services.
Meanwhile, Morgan Stanley analyst Hamza Fodderwala recently surveyed computer distributors on cybersecurity firms, including Rapid7.
"Rapid7 came in better than expected, signaling potential signs of stabilization in the business early in 2023," Fodderwala said in a note. "While the company appears to be de-emphasizing its roots in vulnerability management, partners spoke to success in midmarket managed detection and response sales, as well as incremental traction in cloud/application security."
Further, Rapid7 has a Relative Strength Rating of 62 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an 80 or better RS Rating.
In addition, cybersecurity stocks have underperformed the Nasdaq in 2023. The IBD Computer-Software Security group ranks only No. 138 out of 197 industry groups tracked.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
