Rapid7 (Rapid7) Predictability Rank

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What is Rapid7 Predictability Rank?

Warren Buffett said many times that the companies he likes are:

1. Simple businesses that he understands
2. that have predictable and proven earnings and
3. with economic moat
4. those can be bought at a reasonable price.

It is hard to quantify "simple businesses that he (Buffett) understands", so we will focus on the other three characteristics instead. In GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank, we will show that the businesses that have predictable and proven earnings are usually also simple businesses that an average person could understand.

GuruFocus conducted a back test study of Warren Buffett's strategy of "buying good companies at fair prices" for the years from 1998-2008.

Rapid7 Predictability Rank Calculation

In our database there are 2403 stocks that have been traded from Jan. 2, 1998 to Aug. 31, 2008. We have the complete 10-year financial data and trading prices of these companies for this period. We rank the predictability of these companies based on the consistency of their revenue per share and EBITDA (earning before interest, tax, depreciation and amortization) per share over the past ten fiscal years, and study the correlation between the stock performances and the predictability of the business.

Our study may be subject to these biases and assumptions:

Dividend yields are not counted for investment returns
Effects of price changes due to spin-offs may not be fully adjusted
Study is subjected to survivorship bias due to de-listing, bankruptcy, LBO, M&A, etc.

The correlation between business predictability and investment returns of a company is showed below.

Correlation Between Business Predictability and Investment Returns

	Predictables	Non-Predictable	All stocks
Total Number of stocks	570	1833	2403
Total Lost Money	61	830	891
Total Lost More Than 50%	18	412	430
Total Lost More Than 90%	4	86	90
Average Gain	260.6%	100.0%	138.1%
Median Gain	150.0%	13.0%	39.0%
Maximum Gain	2852.0%	11483.0%	11483.0%
Maximum Loss	-100.0%	-100.0%	-100.0%
Annualized Average Gain	12.7%	6.7%	8.4%
Annualized Median Gain	8.9%	1.1%	3.1%

For the 570 predictable companies, we have seen strong correlation between the predictability of businesses and the stock performances over the past 10 years, regardless of the valuation of business at 1998. Accordingly, we have ranked the business predictability from 5-star to 1-star, as shown in this table.

Predictability Rank	5-Star	4.5-Star	4-Star	3.5-Star	3-Star	2.5-Star	2-Star	1-Star (non-predictable)	Average among all
% Out of All 2403 Stocks	3.3%	2.9%	3.7%	3.3%	3.3%	3.7%	3.3%	76.3%	100%
% that are in Loss (10y)	3%	10%	8%	9%	11%	18%	16%	45%	37%
Average Gain (10y)	364.6%	330.9%	278.0%	235.1%	243.5%	227.8%	154.8%	100.0%	138.1%
Median Gain (10y)	238.5%	193.5%	171.0%	159.0%	132.5%	113.5%	87.0%	13.0%	39.0%
Maximum Gainer	2228.0%	2547.0%	2452.0%	2852.0%	2432.0%	1892.0%	1807.0%	11483.0%	11483.0%
Maximum Loser	-82.0%	-53.0%	-67.0%	-100.0%	-83.0%	-100.0%	-78.0%	-100.0%	-100.0%
Annualized Average Gain	15.4%	14.6%	13.2%	12.0%	12.2%	11.7%	9.1%	6.7%	8.4%
Annualized Median Gain	12.1%	10.6%	9.8%	9.3%	8.2%	7.3%	6.0%	1.1%	3.1%

For detailed information about each predictability rank, please go to GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank

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Rapid7 (Rapid7) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Technology » Software » Rapid7 Inc (NAS:RPD) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

R7D:Germany R7D:Germany

Address

120 Causeway Street, Boston, MA, USA, 02114

Website

https://www.rapid7.com

Founded in 2000, Rapid7 is a cybersecurity company that began providing vulnerability management solutions. It has, however, expanded its portfolio to provide extended detection and response, or XDR; security information and event management, or SIEM; cloud security, threat intelligence, and application security; and security orchestration, automation, and response, or SOAR. The Boston-based company went public in 2015.

Executives

Andrew F. Burton	officer: Chief Operating Officer	500 UNICORN PARK DRIVE, WOBURN MA 01801
Marc Evan Brown	director	C/O RAPID7, INC., 100 SUMMER STREET, BOSTON MA 02110
Thomas Corey E.	director, officer: President and CEO	C/O RAPID7, INC., 100 SUMMER STREET, BOSTON MA 02110
Timothy M Adams	officer: Chief Financial Officer	311 ARSENAL STREET, WATERTOWN MA 02472
Thomas E Schodorf	director	C/O SPLUNK INC, 250 BRANNAN STREET, SAN FRANCISCO CA 94107
Christina Luconi	officer: Chief People Officer	C/O RAPID7, INC., 100 SUMMER STREET, BOSTON MA 02110
Peter Kaes	officer: SVP, General Counsel	C/O RAPID7, INC., 100 SUMMER STREET, BOSTON MA 02110
Benjamin Holzman	director, 10 percent owner	C/O BAIN CAPITAL VENTURES, 335 BRYANT STREET, PALO ALTO CA 94301
Jeffrey Kalowski	officer: Chief Financial Officer	10 MAGUIRE ROAD, BUILDING 1, SUITE 125, LEXINGTON MA 02421
Lee David Weiner	officer: Chief Product Officer	C/O RAPID7, INC., 100 SUMMER STREET, BOSTON MA 02110
Michael J Berry	director	C/O INFORMATICA CORPORATION, 2100 SEAPORT BOULEVARD, REDWOOD CITY CA 94063
Judy Bruner	director	C/O SANDISK CORPORATION, 601 MCCARTHY BLVD., MILPITAS CA 95035
Reeny Sondhi	director	C/O RAPID7, INC., 120 CAUSEWAY STREET, BOSTON MA 02114
Christina Kosmowski	director	C/O RAPID7, INC., 120 CAUSEWAY STREET, BOSTON MA 02114
Timothy P Mcadam	director, 10 percent owner, other: May be part of a 13(d) group	250 MIDDLEFIELD RD, MENLO PARK CA 94025