Investors bid Rapid7 (NASDAQ:RPD) up US$88m despite increasing losses YoY, taking five-year CAGR to 12%

Rapid7, Inc. (NASDAQ:RPD) shareholders might understandably be very concerned that the share price has dropped 43% in the last quarter. Looking further back, the stock has generated good profits over five years. Its return of 74% has certainly bested the market return! While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 72% drop, in the last year.

The past week has proven to be lucrative for Rapid7 investors, so let's see if fundamentals drove the company's five-year performance.

Our analysis indicates that RPD is potentially undervalued!

Because Rapid7 made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last 5 years Rapid7 saw its revenue grow at 25% per year. Even measured against other revenue-focussed companies, that's a good result. While the compound gain of 12% per year is good, it's not unreasonable given the strong revenue growth. If you think there could be more growth to come, now might be the time to take a close look at Rapid7. Opportunity lies where the market hasn't fully priced growth in the underlying business.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Rapid7

A Different Perspective

While the broader market lost about 19% in the twelve months, Rapid7 shareholders did even worse, losing 72%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 12%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Rapid7 better, we need to consider many other factors. Take risks, for example - Rapid7 has 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Rapid7 is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.