Is Now The Time To Look At Buying Rapid7, Inc. (NASDAQ:RPD)?

Rapid7, Inc. (NASDAQ:RPD), is not the largest company out there, but it saw significant share price movement during recent months on the NASDAQGM, rising to highs of US$43.94 and falling to the lows of US$38.16. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Rapid7's current trading price of US$38.16 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Rapid7’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Rapid7

What Is Rapid7 Worth?

According to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Rapid7’s ratio of 51.26x is above its peer average of 38.86x, which suggests the stock is trading at a higher price compared to the Software industry. Another thing to keep in mind is that Rapid7’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

What does the future of Rapid7 look like?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Rapid7's earnings over the next few years are expected to increase by 76%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? RPD’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe RPD should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on RPD for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for RPD, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Rapid7 as a business, it's important to be aware of any risks it's facing. When we did our research, we found 3 warning signs for Rapid7 (2 are a bit unpleasant!) that we believe deserve your full attention.

If you are no longer interested in Rapid7, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.