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On Tuesday, Raymond (NSE:RYMD) James financial analyst Michael Turtis adjusted the price target for Rapid7 (NASDAQ:RPD) stock to $40 from the previous $45, while maintaining an Outperform rating. The adjustment follows Rapid7’s first-quarter results, which showed slower growth and a downward revision of full-year expectations. According to InvestingPro data, the company’s revenue growth has slowed to 6.2% in the last twelve months, with analyst targets ranging from $21 to $45.
Turtis reiterated the Outperform rating for Rapid7 despite the company’s first-quarter performance, which did not meet the growth expectations. He noted that the 2025 outlook for Rapid7 appeared similar to previous years, where the company often began with a slow start followed by lowered guidance. However, Turtis had anticipated that the company’s Managed Detection and Response (MDR) business growth and past go-to-market disruptions might lead to a different outcome this year. The company maintains a healthy gross profit margin of 70.6% and has demonstrated profitability over the last twelve months.
Despite the initial disappointment with the year’s start, where net new annual recurring revenue (NNARR) was negative, Turtis believes that Rapid7’s current trading value reflects a ’broken software multiple’, indicating that market expectations are low. He remains optimistic that investment in the company’s higher-growth MDR segment could improve valuation multiples. InvestingPro analysis suggests the stock is currently undervalued, despite trading at a P/E ratio of 66x. Subscribers to InvestingPro can access 12 additional investment tips and a comprehensive Pro Research Report for deeper insights into Rapid7’s valuation metrics and growth potential.
Turtis also expressed a positive outlook on the potential for new board influence to drive significant change over time. He has previously advocated for a sum-of-the-parts (SOTP) analysis for Rapid7. In terms of performance, Turtis expects the MDR segment to continue growing in double-digits with a low-teens free cash flow margin. He also anticipates a turnaround in the Vulnerability Management (VM) business, spurred by upsells of the Exposure Command Center. Recent performance shows promise, with the stock posting an 11% return over the past week and maintaining a strong free cash flow yield, according to InvestingPro data.
In other recent news, Rapid7 reported its Q1 2025 earnings, with revenue slightly exceeding forecasts. The company’s revenue reached $210 million, surpassing the expected $208.24 million, reflecting a 3% year-over-year growth. Despite this positive development, DA Davidson downgraded Rapid7’s stock from Neutral to Underperform, reducing the price target to $21, citing concerns over decelerating growth. The downgrade followed Rapid7’s report of a 4% year-over-year increase in Annual Recurring Revenue (ARR), which fell short of expectations. DA Davidson highlighted a negative Net New Annual Recurring Revenue (NNARR) of $2.6 million and a decline in customer count as additional concerns. Rapid7’s guidance for Calendar Year 2025 ARR growth was adjusted downwards to 1-5%, with a similar revision for Free Cash Flow guidance. The company remains focused on expanding its Detection & Response offerings and enhancing AI capabilities, despite challenges in the U.S. mid-market spending environment.
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