A Look At Radware (RDWR) Valuation After Buyback Plan Pynt Acquisition And Cloud DDoS Expansion

Radware (RDWR) has drawn fresh attention after authorizing a share repurchase of up to US$80 million, completing the Pynt acquisition in API security testing, and doubling its global cloud DDoS mitigation capacity.

See our latest analysis for Radware.

Those moves sit alongside a 10.03% 1 month share price return and a 13.10% 3 month share price return to US$27.20. The 1 year total shareholder return of 37.30% signals building momentum compared with more muted longer term results.

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With Radware trading at US$27.20 against an average analyst price target of US$32.33 and an intrinsic value estimate that implies a premium, the real question is whether this momentum signals a buying opportunity or whether the market is already pricing in future growth.

Price-to-Earnings of 56.8x: Is it justified?

Radware shares last closed at $27.20, which currently reflects a P/E of 56.8x, a level that screens as expensive against both peers and the wider US Software industry.

The P/E multiple compares the current share price to earnings per share and is a quick way to see how much investors are paying for each dollar of earnings. For a cyber security and application delivery business like Radware, a higher P/E can sometimes indicate that the market is paying up for quality earnings, improving margins or expectations that recent profit momentum might be sustained.

Here, the valuation picture is mixed. On one hand, Radware is described as having high quality earnings, current net profit margins of 6.7% compared with 2.2% last year, and earnings growth over the past year that was very large and much faster than both its own 5 year trend and the broader Software industry. On the other hand, earnings have declined by 5.6% per year over the past 5 years, return on equity is a low 5.2%, and the SWS DCF model suggests the shares are trading above an estimated future cash flow value of $21.27, which points to a premium price tag.

That premium stands out even more when set against benchmarks. Radware’s 56.8x P/E is higher than the US Software industry average of 30x and above a peer average of 24.3x, which means the market is assigning Radware a valuation multiple more than double what similar companies trade on.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Earnings of 56.8x (OVERVALUED)

However, if earnings growth cools or the premium valuation relative to peers narrows, that momentum could fade more quickly than recent returns suggest.

Find out about the key risks to this Radware narrative.

Another View: Cash Flows Paint a Different Picture

The P/E ratio makes Radware appear expensive, and our DCF model sends a similar message in a different way. With the SWS DCF model pointing to an estimated future cash flow value of $21.27 versus a share price of $27.20, the stock screens as overvalued on cash flows too. This raises the question of whether the market is overpaying for recent momentum or whether something in the cash flow assumptions is too cautious.

Look into how the SWS DCF model arrives at its fair value.

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 58 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

Feeling conflicted by the mix of premium pricing and recent momentum signals? Use the full data to pressure test the upside and downside, starting with 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.

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