Critical Analysis: Rapid7 (NASDAQ:RPD) versus Stem (NYSE:STEM)

Rapid7 (NASDAQ:RPD) and Stem (NYSE:STEM) are both small-cap technology companies, but which is the better business? We will contrast the two companies based on the strength of their institutional ownership, dividends, valuation, earnings, risk, analyst recommendations and profitability.

Profitability

This table compares Rapid7 and Stem’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Rapid7	2.35%	27.89%	2.66%
Stem	-49.37%	N/A	-21.85%

Valuation & Earnings

This table compares Rapid7 and Stem”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Rapid7	$855.92 million	1.03	$23.38 million	$0.31	42.23
Stem	$156.27 million	0.23	$137.76 million	($8.49)	-0.45

Stem has lower revenue, but higher earnings than Rapid7. Stem is trading at a lower price-to-earnings ratio than Rapid7, indicating that it is currently the more affordable of the two stocks.

Volatility & Risk

Rapid7 has a beta of 1.01, indicating that its share price is 1% more volatile than the S&P 500. Comparatively, Stem has a beta of 1.52, indicating that its share price is 52% more volatile than the S&P 500.

Institutional & Insider Ownership

95.7% of Rapid7 shares are owned by institutional investors. Comparatively, 61.6% of Stem shares are owned by institutional investors. 2.0% of Rapid7 shares are owned by insiders. Comparatively, 5.1% of Stem shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for Rapid7 and Stem, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Rapid7	5	17	1	0	1.83
Stem	1	4	0	0	1.80

Rapid7 currently has a consensus price target of $11.98, suggesting a potential downside of 8.47%. Stem has a consensus price target of $7.45, suggesting a potential upside of 95.54%. Given Stem’s higher probable upside, analysts plainly believe Stem is more favorable than Rapid7.

Summary

Rapid7 beats Stem on 10 of the 14 factors compared between the two stocks.

About Rapid7

Rapid7, Inc. provides cybersecurity solutions under the Rapid7, Nexpose, and Metasploit brand names. The company offers endpoint to cloud data collection and sharing applications, such as Rapid7 Insight Agent, a software-based agent that is used on assets across on-premises and cloud environments to centralize and monitor data on company's platform; Rapid7 Insight Network Sensor that analyzes raw end-to-end network traffic to increase visibility into user activity, pinpoint real threats, and investigations; Rapid7 Cloud Event Data Harvesting that offers visibility into changes made to cloud resources; and third-party integrations and ecosystem, as well as orchestration and automation solutions. It also offers various platforms, including Rapid7 managed threat complete consisting of managed detection response that delivers end-to-end threat detection and response, as well as offloads day-to-day vulnerability management operations. In addition, it provides Rapid7 threat complete consisting of InsightIDR, a security information and event management, and extended detection and response solution; and InsightVM, a vulnerability management solution that provides visibility across on-premise and remote endpoints for security teams to evaluate the business risks, and configurations, and share with their IT counterparts for remediation. Further, the company offers Rapid7 cloud risk complete, which includes InsightCloudSec, a cloud risk and compliance management solution; and InsightAppSec, a dynamic application security testing tool. It also provides professional services. It serves a range of industries, including business services, pharmaceuticals, technology, energy, financial services, healthcare and life sciences, manufacturing, media and entertainment, retail, education, real estate, travel and transportation, government, online services, telecommunications, and professional services. The company was incorporated in 2000 and is headquartered in Boston, Massachusetts.

About Stem

Stem, Inc. operates as a digitally connected, intelligent, and renewable energy storage network provider worldwide. The company offers energy storage hardware sourced from original equipment manufacturers (OEMs); edge hardware to aid in the collection of site data and real-time operation and control of the site and other optional equipment; and Athena, a software platform, which offers battery hardware and software-enabled services to operate the energy storage systems. It serves commercial and industrial enterprises, independent power producers, renewable project developers, and utilities and grid operators. The company was incorporated in 2009 and is headquartered in San Francisco, California.