Radware (RDWR): Assessing Valuation After Strong Q3 Results and Upbeat Revenue Outlook

Radware (NasdaqGS:RDWR) posted higher third quarter revenue and net income compared to last year, and management just announced guidance calling for continued revenue growth in the upcoming period.

See our latest analysis for Radware.

After a solid run through the year, Radware’s momentum cooled this month, with a 1-day share price return of -4.4% and a 7-day drop of -10.7% following strong third quarter earnings and upbeat guidance. Even so, its 1-year total shareholder return of 6.3% highlights steady long-term gains. This suggests the market is weighing near-term caution against Radware’s improved performance outlook.

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With Radware showing annual revenue growth and trading at a notable discount to analyst price targets, investors may be considering whether this is an undervalued opportunity or if the market is already factoring in the company’s future gains.

Price-to-Earnings of 60.8x: Is it justified?

Radware’s shares currently trade at a price-to-earnings (P/E) ratio of 60.8x, which is significantly higher than both its peers and the broader software sector. At a last close price of $23.76, this lofty valuation points to high investor expectations for future growth.

The price-to-earnings ratio measures how much investors are willing to pay for each dollar of earnings, making it a direct gauge of market sentiment and growth expectations in the tech sector. A higher P/E can reflect confidence in future earnings expansion, but it can also signal over-optimism if profit growth is uncertain.

For Radware, the market assigns a much greater premium than usual. This P/E is almost double the peer average of 30.2x and also exceeds the US Software industry average of 35.9x by a wide margin. Such a stark difference suggests that Radware is perceived as having exceptional upside or is trading at an unjustified premium. The market could eventually push its valuation closer to sector norms if upcoming results do not deliver.

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

Result: Price-to-Earnings of 60.8x (OVERVALUED)

However, persistent earnings volatility or a slower pace of revenue growth could prompt investor reevaluation and reduce high expectations for Radware’s shares.

Find out about the key risks to this Radware narrative.

Another View: SWS DCF Model Signals Fair Value

Looking through a different lens, our DCF model estimates that Radware is trading just slightly above its intrinsic fair value. While the market assigns a premium based on earnings, the DCF analysis does not point to a deep bargain or significant underpricing. Should investors trust growth assumptions or the cash flows?

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 840 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Radware Narrative

If you have a different perspective or want to explore the numbers in your own way, you can quickly craft your own takeaway in just a few minutes with Do it your way.

A great starting point for your Radware research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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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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