Why Radware’s latest earnings and partnership matter for investors

Radware (NasdaqGS:RDWR) has caught investor attention after first quarter results showed sales of US$79.81 million with lower net income, as well as a new AI driven DDoS protection partnership in Taiwan with Chief Telecom.

At a share price of US$26.95, Radware has delivered a 10.5% 1 month share price return and a 13.5% 1 year total shareholder return. Its multi cloud security focus and new AI DDoS deal have kept interest in the stock steady.

If this kind of cyber security story interests you, it could be worth seeing what else is moving using our screener of 31 AI small caps

So after a strong recent share price move and new AI driven partnerships in place, should you see Radware at US$26.95 as leaving some value still on the table, or is the market already pricing in future growth?

Price-to-Earnings of 57.3x: Is it justified?

Radware currently trades on a P/E of 57.3x, and at a last close of $26.95 that multiple prices the stock well above peer and industry averages.

The P/E ratio compares the share price to earnings per share, so a higher P/E often means investors are paying more today for each dollar of current earnings. For a cyber security and application delivery company like Radware, a richer P/E can sometimes reflect expectations for ongoing profit growth as the business scales its cloud and AI focused offerings.

Radware’s earnings growth over the past year was 70.5%, ahead of its 5 year average of 5.9% per year, and earnings have grown over the past 5 years. That kind of acceleration can help explain why the market is willing to assign a higher earnings multiple, even with a current net margin of 6.4% and a Return on Equity of 5.4% that is described as low.

Against peers, the premium is clear. Radware’s 57.3x P/E is expensive compared to the peer average of 20.7x, and also expensive versus the broader US Software industry average of 28x. For an investor, the key question is whether the recent earnings growth and multi cloud security positioning support that kind of gap in valuation or whether expectations have simply been set higher than the sector as a whole.

Result: Price-to-Earnings of 57.3x (OVERVALUED)

However, investors also need to weigh a revenue growth rate of 7.9% alongside a 57.3x P/E and a US$1.13b market cap that already embeds strong expectations.

Another view using cash flows

While the 57.3x P/E suggests Radware is expensive, the SWS DCF model also points to a cautious stance. With an estimated future cash flow value of $21.47 versus a $26.95 share price, the stock screens as overvalued on this method as well. This raises the question: where could a mispricing realistically emerge?

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 47 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

The mix of high expectations and questions about value might leave you undecided, so do not wait to review the numbers and form your own stance using the 1 key reward

Looking for more investment ideas?

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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.