Is Radware (RDWR) Undervalued Amid Rising Operational Momentum?

Radware (RDWR) has emerged as a compelling case study in valuation dislocation within the cybersecurity sector. The company's recent financial performance-marked by robust revenue growth and a strategic pivot to cloud-based solutions-has sparked debate over whether its stock is undervalued or overextended. With a trailing price-to-earnings (P/E) ratio of 94.82 and a forward P/E of 24.36 as of July 30, 2025, Radware's valuation appears to straddle two realities: a high-multiple past and a potentially re-rated future.

Operational Momentum: A Cloud-Driven Catalyst

Radware's Q2 2025 results underscore its transition to a cloud-first business model. The company reported a 21% year-over-year increase in Cloud Annual Recurring Revenue (ARR) to $85 million, outpacing its overall revenue growth of 10% to $74.2 million, according to a Panabee report. This divergence highlights the accelerating importance of recurring revenue streams in cybersecurity, a trend mirrored across the industry. According to Panabee, Radware's non-GAAP diluted EPS surged 40% to $0.28 in Q2, surpassing analyst expectations. Such performance suggests that the company is not only adapting to market demands but also generating strong cash flow, a critical factor for sustaining high valuations.

However, Radware's EBITDA margin of 5.68% as of July 30, 2025, lags behind its 2024 margin of 12.62%, according to Stock Analysis. This contraction raises questions about the sustainability of its current valuation. While cybersecurity firms typically trade at elevated EBITDA multiples-33.7x as of Q3 2025-according to a Finro report-Radware's margin compression could limit its ability to justify a re-rating unless profitability improves.

Valuation Dislocation: A Tale of Two Multiples

The disconnect between Radware's trailing P/E and industry benchmarks is striking. At 94.82, its trailing P/E far exceeds the cybersecurity sector's average EBITDA multiple of 33.7x and the broader Information Technology sector's P/E of 40.65, per the Stock Analysis data cited above. This suggests that investors are either overpaying for Radware's growth or that the market has yet to fully price in its long-term potential.

The forward P/E of 24.36, however, hints at a more rational valuation horizon. Analysts project Q3 2025 revenue of $75.3 million and EPS of $0.27, with revenue estimates revised upward by 1.75% over the past three months, according to Panabee. If Radware can maintain its 21% Cloud ARR growth and stabilize its EBITDA margins, the market may begin to apply a multiple closer to industry averages. For context, cybersecurity companies trade at an average revenue multiple of 12.4x (per the Finro report cited above), implying that Radware's $74.2 million revenue could support a market cap of roughly $920 million-a far cry from its current valuation but achievable with sustained growth.

Growth Re-Rating Potential: Cloud, Cash Flow, and Catalysts

Radware's re-rating potential hinges on three factors: cloud adoption, cash flow generation, and macroeconomic tailwinds. The company's Cloud ARR growth of 21% demonstrates its ability to monetize recurring revenue, a metric highly valued in cybersecurity. As stated by Finro Financial Consulting, cybersecurity firms with strong recurring revenue models typically command higher multiples due to their predictable cash flows. Radware's recent expansion of cloud application security centers in Israel and Colombia further positions it to capitalize on global demand for scalable security solutions, according to Panabee.

A critical catalyst will be the Q3 2025 earnings report, scheduled for October 29, 2025. Management's guidance on EBITDA margins and Cloud ARR growth will determine whether the market reclassifies Radware from a speculative play to a core holding. Additionally, the cybersecurity sector's broader momentum-driven by a 37% surge in Q2 2025 funding and $9.2 billion in M&A activity, according to a Moss Adams summary-creates a favorable backdrop for re-rating.

Conclusion: A High-Risk, High-Reward Proposition

Radware's valuation currently reflects a tug-of-war between its operational momentum and profitability challenges. While its trailing P/E of 94.82 appears excessive against industry benchmarks, the forward P/E of 24.36 and projected Cloud ARR growth suggest a path to re-rating. Investors must weigh the risks of margin compression against the potential for a multiple expansion if Radware executes its cloud strategy and demonstrates improved profitability. With the Q3 earnings report looming, the coming weeks will be pivotal in determining whether Radware's valuation aligns with its fundamentals-or corrects to a more sustainable level.