We came across a bearish thesis on Rubrik, Inc. (NYSE:RBRK) on ValueInvestorsClub by wjt. In this article, we will summarize the bears’ thesis on RBRK. The company’s shares were trading at $67.67 when this thesis was published, vs. the closing price of $65.12 on Feb 28.

A security trader on the trading floor, monitoring the fluctuation of bonds in the bond market.

RBRK provides data security solutions to individuals and businesses worldwide. The company offers enterprise data protection, unstructured data protection, cloud data protection, and SaaS data protection solutions; data threat analytics; data security posture; and cyber recovery solutions.

RBRK positions itself as a data security firm but until 2023 it was primarily selling hardware storage appliances. A higher valuation for rebranding itself is not justified and it should be viewed as a data backup company that operates in a highly fragmented and competitive space. As a data backup provider, RBRK is not equipped to prevent ransomware attacks. While backup is critical for most businesses, a ransomware attack can expose the data in an open market. Most firms look for cyber resilience along with backup facilities which RBRK fails to provide. All of RBRK’s upgrades have been to deliver high-performance data management. While anomaly detection has been introduced since 2020, it fails to tackle cybercrime.

The $36 billion TAM that RBRK considers is pretty aggressive since it includes components like cloud security and application security; segments in which RBRK has no business. The existing market of data backup and recovery is $12.9 billion with an estimated CAGR of 6%. This market is already saturated with $8-9 billion already captured by peers and large players like IBM and Dell, leaving little scope for growth. In spite of having a gross margin of 70%, the operating margin continues to be negative due to Selling & Marketing expense exceeding 77% of sales. The R&D expense is lower than the industry, suggesting no technological moat for RBRK.

Even after applying optimistic growth rates of 38% in 2025, 28% in 2026 and ~20% till 2030 thereafter, RBRK generates an FCF of $430 million using an EBIT margin of 30-40%. This results in a share price of $75 in 2030 and $43 today using a discounting rate of 15%. At its current price, the stock is overvalued by over 50%.

While we acknowledge the potential of RBRK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RBRK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.