Tel Aviv, Israel-based cybersecurity and application delivery solutions provider Radware Ltd.’s (RDWR) solutions integrate distributed denial of service protection, web application firewalls, and application delivery controller technologies to enable its customers to provide cyber-attack mitigation solutions for a range of applications. In comparison, SecureWorks Corp. (SCWX) in Atlanta, Ga. provides technology-driven information security solutions, such as software-as-a-service solutions, managed security services, and professional services to protect its customers.
Increasing dependence on cloud computing and digital means of working have propelled a rapid rise in the number of cybercrimes of late, such as the recent and infamous Colonial Pipeline ransomware attack and the SolarWinds cyber hack, which occurred last December. In response, President Biden signed a National Security Memorandum this week to help the nation develop advanced cybersecurity solutions. Also, according to a Research and Markets report, the worldwide cybersecurity industry is expected to grow at a 9.7% CAGR between 2021 - 2026.
RDWR has gained 3.8% over the past month, while SCWX returned 2.2%. However, SCWX’s 57.5% gains over the past three months are significantly higher than RDWR’s 13.7% returns. Furthermore, in terms of their past nine month’s performance, SCWX is the clear winner with 104.9% gains versus RDWR’s 40.5%.
Click here to checkout our Cybersecurity Industry Report for 2021
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On April 15, RDWR announced that in response to the ever-increasing volume of cyberattacks and strong business demand, it had upgraded its Cloud DDoS Protection Service capacity to absorb DDoS attacks of up to 8Tbps. The company also announced the opening of an additional new cloud scrubbing center in Amsterdam.
On July 13, SCWX announced its new Taegis XDR data storage instance in Frankfurt, Germany, for European Union customers and channel partners who prefer to store their telemetry data within the EU. This investment reinforces the company’s ongoing commitment to EU customers and partners while enhancing its readiness to fulfill accelerated growth and meet rising demand in the region.
Recent Financial Results
RDWR’s revenue increased 19% year-over-year to $70 million for its fiscal second quarter ended June 30, 2021. The company’s annual recurring revenue grew 8% year-over-year to $177 million, while its non-GAAP operating income increased 106% year-over-year to $8.8 million. Also, its non-GAAP EPS came in at $0.19, up 46.1% year-over-year.
SCWX’s revenue decreased 1.2% year-over-year to $139.5 million for its fiscal first quarter ended April 30, 2021. The company’s annual recurring revenue grew 191% year-over-year to $72 million. Its adjusted EBITDA increased 44.6% year-over-year to $8.1 million. Also, its non-GAAP EPS came in at $0.05, up 66.7% year-over-year.
Past and Expected Financial Performance
RDWR’ revenue and levered FCF grew at CAGRs of 6.3% and 62.5%, respectively, over the past three years. Analysts expect RDWR’s revenue to increase 9.2% in its fiscal year 2021 and 9.4% in fiscal 2022. The company’s EPS is expected to grow 12.5% in the current year and 25% next year. Also, its EPS is expected to grow at a 5.9% rate per annum over the next five years.
In comparison, SCWX’s revenue and levered FCF grew at CAGRs of 5.2% and 89.7%, respectively, over the past three years. The company’s revenue is expected to decrease 2.8% in its fiscal year 2022 and increase 2.9% in fiscal 2023. Its EPS is expected to decline 140.9% in fiscal 2022 and 44.4% in fiscal 2023. SCWX’s EPS is expected to grow at a 70.3% rate per annum over the next five years.
Profitability
SCWX’s trailing-12-month revenue is 2.09 times RDWR’s. However, RDWR is more profitable, with an 81.74% and 8.89% gross profit and EBITDA margins, respectively, compared to SCWX’s 57.72% and 1.99%.
Moreover, RDWR’s ROE, ROA, and ROTC of 3.89%, 1.35%, and 2.05%, respectively, compare with SCWX’s negative values.
Valuation
In terms of forward non-GAAP EV/Sales, RDWR is currently trading at 3.99x, which is higher than SCWX’s 2.91x. However, SCWX’s 44,399.08x forward EV/EBITDA is significantly higher than RDWR’s 25.43x.
POWR Ratings
RDWR has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In contrast, SCWX has an overall C rating, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
RDWR has an A grade for Growth, which is consistent with analysts’ expectations that its EPS will increase significantly in the current year. SCWX has a D Growth grade, which is consistent with analysts’ expectations that its EPS will decline this year.
RDWR has an A grade for Quality also. This is justified given RDWR's 14.63% trailing-12-month levered FCF margin, which is higher than the 12.13% industry average. SCWX, in comparison, has a C Quality grade, which is in sync with its 8.92% trailing-12-month levered FCF margin, which is lower than the 12.13% industry average.
Of the 26 stocks in the Software - Security industry, RDWR is ranked #1, while SCWX is ranked #10.
Beyond what we’ve stated above, we have also rated both the stocks for Stability, Momentum, Sentiment, and Value. Click here to view all the RDWR ratings. Also, get all the SCWX ratings here.
The Winner
As the world becomes more dependent on digital solutions, cybersecurity solutions are expected to increase exponentially. While both RDWR and SCWX are expected to gain from the industry tailwinds in the long run, we think it is better to bet on RDWR now because of its better financials, high profitability, and impressive growth prospects.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Software - Security industry here.
Click here to checkout our Cybersecurity Industry Report for 2021
RDWR shares were trading at $32.36 per share on Friday afternoon, up $0.17 (+0.53%). Year-to-date, RDWR has gained 16.61%, versus a 18.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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