Qualys vs. Rapid7: Which Cybersecurity Stock is a Better Buy?

Rapid7, Inc. (RPD) and Qualys, Inc. (QLYS) are two prominent players in the cybersecurity space. Boston-based RPD focuses on advancing security data with visibility, analytics, and automation through its Insight platform. It also offers certification consultation, cybersecurity audit, technical assessment, and other security services. In comparison,  QLYS, in Redwood City, Calif., operates Qualys Cloud Platform, which delivers IT security risk and compliance management solutions that enable organizations to identify security risks to their IT infrastructures and prevent cyberattacks. Both companies serve technology, financial services, healthcare, media, manufacturing, retail, education, and transportation industries, along with governmental agencies, through direct sales forces and a network of channel partners.

The penetration tools and deepfakes in cyberattacks and data breaches to gain access to sensitive user data and networks have been heightening the demand for advanced and cost-efficient cybersecurity solutions from governments and enterprises worldwide.

Investor interest in this space is evident in the Global X Cybersecurity ETF’s (BUG) 13% gains versus the SPDR S&P 500 Trust ETF’s (SPY) 7.1% returns over the past month. The global cybersecurity market is expected to grow at a 12% CAGR to $366.10 billion by 2028. So, both RPD and QLYS should benefit.

But while QLYS has gained 43.5% in price over the past year, RPD has surged 102%. QLYS is a clear winner with 81.5% gains versus RPD’s 43.1% returns in terms of their past six months’ performance. But which of these stocks is a better pick now? Let’s find out.

Click here to checkout our Cybersecurity Industry Report for 2021

Latest Developments

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. Because  cyber threats are increasing with the rapid digital transformation of various businesses, 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 November 2, 2021, QLYS announced the addition of Infrastructure as Code (IaC) scanning to its CloudView app. Misconfigurations are often detected post-deployment, which leaves companies exposed to a much larger attack surface and more vulnerable to nefarious exploits. IaC helps companies detect and mitigate misconfigurations early in the development cycle, which accelerates secure application delivery, removes risk in the production environment, and fosters greater collaboration between DevOps and security teams. QLYS is expected to witness high demand from enterprises in the coming months.

Recent Financial Results

RPD’s total revenue for its fiscal third quarter, ended September 30, 2021, increased 33.1% year-over-year to $139.89 million. The company’s non-GAAP gross profit has been reported at $102.84 million, representing a 32.5% year-over-year improvement. RPD’s non-GAAP income from operations was  $5.73 million, up 134.6% from the prior-year period. While its non-GAAP net income increased 13672% year-over-year to $3.44 million, its non-GAAP EPS increased significantly to $0.06. The company had $227.10 million in cash and cash equivalents as of September 30, 2021.

For its fiscal third quarter, ended September 30, 2021, QLYS’ revenues increased 12.7% year-over-year to $104.93 million. The company’s non-GAAP gross profit came in at $85.06 million, representing a 13.7% rise from the prior-year period. Its non-GAAP income from operations was  $43.11 million for the quarter, up 12.3% from the prior-year period. QLYS’ non-GAAP net income came in at $34.15 million, indicating an 8.8% increase from the prior-year period. Its non-GAAP EPS increased 10.4% year-over-year to $0.85. The company had $145.74 million in cash and cash equivalents as of September 30, 2021.

Past and Expected Financial Performance

RPD’s revenue and total assets have increased at CAGRs of 28.7% and 34.2%, respectively, over the past three years.

Analysts expect RPD’s EPS to remain negative in the current year and rise 285.7% next year. Its revenue is expected to increase 28.5% year-over-year in the current year and 23.2% next year. And the company’s EPS is expected to grow at a 52.3% rate per annum over the next five years.

In comparison, QLYS’ revenue and total assets have grown at  CAGRs of 14% and 8.9%, respectively, over the past three years.

QLYS’ EPS is expected to rise 10.5% year-over-year in the current year and 4.7% next year. Its revenue is expected to rise 12.9% in the current year and 13.2% next year. And analysts expect the stock’s EPS to grow at an 8%  rate  per annum over the next five years.

Valuation

In terms of non-GAAP forward P/E, QLYS is currently trading at 43.93x, compared to RPD’s negative 1998.15x. In terms of forward EV/EBITDA, QLYS’ 25.41x compares with RPD’s 334.10x.

Profitability

RPD’s trailing-12-month revenue is almost 1.3 times higher than QLYS. However, QLYS is more profitable, with a 30% EBITDA margin versus RPD’s negative value.

Also, QLYS’ 7.1% and 11.4% respective ROA and ROTC compare with RPD’s negative values.

POWR Ratings

While QLYS has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, RPD has an overall D grade, equating to Sell. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

In terms of Quality, QLYS has been graded an A, which is consistent with its higher-than-industry profitability ratios. QLYS’ 9.7% trailing-12-month ROTC is 166.7% higher than the 3.6% industry average. In comparison, RPD’s D grade for Quality is in sync with its negative trailing-12-month ROTC.

QLYS has a C grade for Value, which is in sync with its slightly higher-than-industry valuation ratios. QLYS has a 27.70x forward Price/Cash Flow, which is 19.6% higher than the 23.17x industry average. RPD’s D grade for Value reflects its overvaluation. The company’s 212.94x forward Price/Cash Flow is 819.1% higher than the 23.17x industry average.

Of the 28 stocks in the Software - Security industry, RPD is ranked #22, while QLYS is ranked #6.

Beyond what we have stated above, our POWR Ratings system has also rated RPD and QLYS for Growth, Momentum, Stability, and Sentiment. Get all RPD ratings here. Also, click here to see the additional POWR Ratings for QLYS.

Click here to check out our Software Industry Report for 2021

The Winner

Governments and enterprises’ focus on and increasing investments in IT security amid rising cyberattacks have been driving the cybersecurity market’s growth. Both RPD and QLYS should benefit from the industry tailwinds. However, its relatively lower valuation and higher profitability we think make QLYS 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 Software - Security industry.

Click here to checkout our Cybersecurity Industry Report for 2021

RPD shares were trading at $141.96 per share on Tuesday morning, up $1.83 (+1.31%). Year-to-date, RPD has gained 57.45%, versus a 26.32% rise in the benchmark S&P 500 index during the same period.

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.

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