3 Reasons to Avoid RPD and 1 Stock to Buy Instead

Rapid7 has gotten torched over the last six months - since September 2025, its stock price has dropped 68.9% to $6.35 per share. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Is now the time to buy Rapid7, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Rapid7 Will Underperform?

Even though the stock has become cheaper, we're cautious about Rapid7. Here are three reasons you should be careful with RPD and a stock we'd rather own.

1. Weak Billings Point to Soft Demand

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Rapid7’s billings came in at $247.2 million in Q4, and over the last four quarters, its year-on-year growth averaged 1.3%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers.

2. Long Payback Periods Delay Returns

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Rapid7’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between Rapid7’s products and its peers.

3. Shrinking Operating Margin

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

Looking at the trend in its profitability, Rapid7’s operating margin decreased by 2.8 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 1.3%.

Final Judgment

Rapid7 doesn’t pass our quality test. After the recent drawdown, the stock trades at 0.5× forward price-to-sales (or $6.35 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

Stocks We Would Buy Instead of Rapid7

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