The cybersecurity bubble seems to be finally popping and dragging stocks like Rapid7 down with it. RPD reached an all-time high of $145 a share in November, 2021, before losing 41% to $85 by February, 2022. The stock has since recouped some of those losses and recovered to over $111 as of this writing. However, it is still down 23% from its record. Can the bulls hold on to the recent gains, though?
Fundamentally speaking, Rapid7 is still a money-losing operation. The company is expected to be only barely profitable on a Non-GAAP basis this year with $0.11 EPS estimates. With the stock at $111, it trades at an obscenely high P/E ratio of nearly 1000. So, it looks like RPD is still extremely overvalued and very much in a bubble.
Elliott Wave Looking to Bring its Rapid7 Winning Streak to Three in a Row
But that didn’t prevent it from reaching $145 not long ago, so valuation alone cannot tell us anything about the stock’s future direction. Elliott Wave analysis, on the other hand, has proven its metal with this stock not once, but twice already. And right now, Rapid7 ‘s daily chart below is giving it another try.
This graph reveals that the selloff from $145 to $85 was a textbook five-wave impulse. The pattern is labeled 1-2-3-4-5 and is known to only develop in the direction of the larger trend. This means we can expect more weakness as soon as the corresponding A-B-C corrective recovery is over. Whether wave (2/B) has already ended at $113.41 or is still in progress is hard to tell.
It is also irrelevant. The point is that the recent rally is unlikely to reach a new record. Instead, investors should prepare for another leg down in wave (3/C). It is supposed to drag Rapid7 stock to a new low below $85 a share in the months ahead. Unfortunately, even at $80 a share the stock would still trade at 160 times its expected 2023 earnings. We don’t think we’ll be eager to buy any time soon.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!