Understanding Radware’s Recent Share Performance

Radware (NasdaqGS:RDWR) has drawn fresh attention after recent share price moves, with the stock showing mixed short term returns but a stronger pattern over the past 3 months and year to date.

Recent trading has been relatively steady, with a 1 day share price return of 0.28% decline contrasting with a 10.62% 90 day share price gain and a 15.59% 1 year total shareholder return. Together, these figures suggest that momentum has been building over the medium term.

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With Radware trading at US$26.73, an intrinsic discount of 26% and about 16% below the average analyst price target of US$31.00, you have to ask yourself whether there is still a buying opportunity here or whether the market is already pricing in future growth.

Preferred P/E of 55.5x: Is it justified?

Radware currently trades on a P/E of 55.5x, which is high relative to both its own recent earnings profile and commonly cited software sector benchmarks.

The P/E ratio compares the share price with earnings per share and, in simple terms, reflects how many dollars investors are paying for each dollar of current earnings. For a cyber security and application delivery company like Radware, this usually embeds expectations around future profit growth, margin resilience and the durability of demand across its core markets.

Here, the picture is mixed. Earnings declined by 5.6% per year over the past 5 years, yet grew very strongly over the past year and earnings are described as high quality, with profit margins improving from 2.2% to 6.7%. That combination can lead some investors to treat the latest profit rebound as the new baseline, which can support a higher multiple, but it also means a lot of optimism is already reflected in the current P/E.

Compared with the US Software industry average P/E of 30.3x and a peer average of 21x, Radware’s 55.5x stands out as expensive in relative terms. The stock is therefore pricing in much stronger profitability than the average peer, even though revenue is forecast to grow at 7.7% per year, which is slower than both the US market at 11.2% per year and the 20% threshold sometimes used for high growth labels.

Result: Price-to-Earnings of 55.5x (OVERVALUED)

However, this setup can look fragile if revenue growth slows from the current 7.7% annual rate or if cyber security spending softens against today’s elevated P/E.

Another View: What Our DCF Model Says

While the 55.5x P/E suggests Radware is priced richly, the SWS DCF model points in the same direction. With the stock around $26.73 and our estimate of future cash flow value at $21.15, it screens as overvalued on cash flows as well. So where does that leave you?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Radware for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 49 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With valuation signals pointing both ways, it makes sense to look beyond the headline multiples and review the underlying data yourself before forming a view. To see how the balance of risk and reward stacks up right now, take a closer look at the 1 key reward and 1 important warning sign

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.