Boston based Rapid7, Inc. (RPD) and NetScout Systems, Inc. (NTCT) in Westford, Mass., are two prominent companies that offer cybersecurity solutions. RPD provides services to collect, contextualize, and analyze security data to reduce threat exposure and detect compromise in real-time, while NTCT provides operational intelligence and performance analytics for service assurance and cybersecurity solutions. Both the companies serve technology, financial services, healthcare, manufacturing, retail, education, transportation, governmental agencies industries through direct sales forces and indirect channel partners.
The growing adoption of cloud computing and the accelerated pace of digital transformation of almost all industries have been facilitating rising incidences of cyberattacks and privacy breaches. As a result, companies offering cybersecurity solutions are witnessing heightened demand from enterprises to protect their data and privacy. Moreover, cloud-based deployment of cybersecurity solutions has been helping organizations to reduce costs associated with expensive hardware equipment for storage and other maintenance costs, driving the demand for such solutions even more. The global cybersecurity market is expected to grow at a 9.7% CAGR to reach $345.40 billion by 2026. And both RPD and NTCT will likely benefit from the industry tailwinds.
But while NTCT has gained 2.7% in price over the past three months, RPD has surged 42.9%. And in terms of the past nine months’ performance, RPD is a clear winner with 66.6% gains versus NTCT’s 22.3%. But, which of these stocks is a better pick now? Let’s find out.
Click here to checkout our Cybersecurity Industry Report for 2021
On July 19, 2021, RPD acquired IntSights Cyber Intelligence Ltd., an external threat intelligence and protection platform, for approximately $335 million in cash and stock. With the digital transformation of the business, cyber threats are increasing now, and the ability to provide companies with early, contextualized threat detection across their internal and external environments should enable RPD, with the help of IntSights, to generate good sales in the coming months.
On July 28, 2021, NTCT received third-party accreditation from the International Organization for Standardization (ISO) for information security management. With enterprises worldwide facing threats to the availability, integrity, and confidentiality of customer data and information, this certification should allow NTCT to increase demand from companies and capture an expanding customer base in the coming months.
Recent Financial Results
RPD’s total revenue for its fiscal first quarter ended June 30, 2021, increased 28.9% year-over-year to $119.15 million. The company’s non-GAAP gross profit has been reported at $91.85 million, representing a 25.6% year-over-year improvement. Its non-GAAP income from operations came in at $6.07 million, up 42.3% from the prior-year period. While its non-GAAP net income increased 40.6% year-over-year to $3.93 million, its non-GAAP EPS increased 40% year-over-year to $0.07. The company had $493.57 million in cash and cash equivalents as of June 30, 2021.
For its fiscal first quarter, ended June 30, 2021, NTCT’s non-GAAP revenue increased 3.5% year-over-year to $190.27 million. The company’s gross profit came in at $141.50 million, up 2.9% from the prior-year period. Its non-GAAP income from operations has been reported $21.78 million for the quarter, up 5.5% from the year-ago period. NTCT’s non-GAAP net income came in at $14.96 million, representing a 22.4% year-over-year improvement. Its non-GAAP EPS increased 17.6% year-over-year to $0.20. As of June 30, 2021, the company had $487.17 million in cash and cash equivalents.
Expected Financial Performance
Analysts expect RPD’s revenue to increase 26.9% year-over-year in the current year and 21.4% next year. Its EPS is expected to remain negative in the current year. The stock’s EPS is expected to grow at a 52.3% rate per annum over the next five years.
Analysts expect NTCT’s revenue to increase 2.1% year-over-year in the current year and 4.1% next year. Its EPS is expected to increase 2.2% in the current year. Analysts expect the stock’s EPS to grow at a 1.8% rate per annum over the next five years.
NTCT’s trailing-12-month revenue is 1.8 times RPDs. NTCT is also more profitable, with a 17.3% EBITDA margin versus RPD’s negative value.
Also, NTCT’s net income margin, ROA, and ROTC values of 3%, 0.8%, and 1.1%, respectively, compare favorably with RPD’s negative values.
In terms of non-GAAP forward P/E, NTCT is currently trading at 15.77x, compared to RPD’s negative 1455.47x. Also, in terms of trailing-12-month EV/Sales, RPD’s 14.39x is 517.6% higher than NTCT’s 2.33x.
While RPD has an overall D grade, which translates to Sell in our proprietary POWR Ratings system, NTCT has an overall B grade, equating to Buy. The POWR Ratings are calculated considering 118 distinct factors, each weighted to an optimal degree.
NTCT has an A grade for Value, which is consistent with its lower-than-industry valuation ratios. NTCT’s 11.08x forward EV/EBIT is 46% lower than the 20.50x industry average. However, RPD’s D grade for Value reflects its overvaluation. The company has a 756.29x forward EV/EBIT, which is 3589% higher than the 20.50x industry average.
In terms of Sentiment, NTCT has been graded a C, consistent with its analysts’ estimates that its EPS will increase 2.2% year-over-year in the current year to $1.74. However, RPD’s D grade for Sentiment is in sync with analysts’ estimate that its loss per share will be 0.07 for the current year.
Of the 75 stocks in the Technology – Services industry, NTCT is ranked #4. In comparison, RPD is ranked #22 of 26 stocks in the Software – Security industry.
Beyond what we’ve stated above, our POWR Ratings system has also rated both RPD and NTCT for Momentum, Growth, Stability, and Quality. Get all RPD ratings here. Also, click here to see the additional POWR Ratings for NTCT.
The rising demand for cybersecurity solutions to prevent cyber threats and privacy breaches should benefit both RPD and NTCT. However, we think that its relatively lower valuation and higher profitability make NTCT a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Technology – Services industry, and here for those in the Software – Security industry.
Click here to checkout our Cybersecurity Industry Report for 2021
RPD shares were trading at $110.20 per share on Wednesday afternoon, up $1.04 (+0.95%). Year-to-date, RPD has gained 22.23%, versus a 19.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More…
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