Both Radware Ltd. (RDWR) and Fortinet, Inc. (FTNT) are cybersecurity solutions providers, operating worldwide. Headquartered in Tel Aviv, Israel, RDWR offers AppWall, a web application firewall, and DefenseFlow, a cyber-command and control application among other cloud protection services. Based in Sunnyvale, California, FTNT offers hardware and software licenses, endpoint protection with pattern-based anti-malware, and other security solutions to safeguard systems and data.

Increased adoption of digital platforms and the “work-from-anywhere” trend amid a rapidly evolving “new normal” has been pushing organizations and individuals to focus more on cybersecurity to tackle cybercriminals and scammers. Without a doubt, remote working arrangements have brought about challenges like insecure networks and data privacy breaches. As companies are expected to reassess their security threats now more than ever, cybersecurity solutions providers like RDWR and FTNT should see rising demand for their products and services in the upcoming months.

RDWR has gained 25.6% over the past year, while FTNT has returned 80.1% over the same period. Also, in terms of the past nine-month performance, FTNT is the clear winner with 34.3% gains versus RDWR’s 11.3%. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

Last month, RDWR and TeraGo Inc., a leading cloud services provider, jointly announced the development of a cloud-based distributed denial-of-service (DDoS) protection solution to protect online elections from cyber-attacks for Simply Voting, Inc. This collaboration would help meet the security needs of RDWR’s customers and further elevate its brand.

In February, the company partnered up with Internet2 to provide customized on-demand cloud DDoS Mitigation service for education network providers across the United States. This offering should allow RDWR to meet the complex security demands of its clients, which include research facilities, educational institutions, and major healthcare systems. 

Last month, FTNT introduced a book — Cyber Safe — to increase cyber awareness amongst children ranging from 7 to 12 years old. With the rapid shift to online learning activities, this cybersecurity awareness book should help to protect children and their parents against cyber-harms. Also in March, the company entered into a strategic partnership with Linksys, a leading wireless networking products company, to secure and simplify remote connectivity and enable organizations to have a fast and reliable user experience.

Recent Financial Results

During the fourth quarter, ended December 31, 2020, RDWR’s revenues in the EMEA segment increased 17% year-over-year to $24.2 million. The company’s revenues in the Asia-Pacific region rose 2% from the prior-year quarter to $17.4 million. It reported a non-GAAP net income of $2.8 million and earnings per share of $0.21. RDWR’s gross profit increased 2.75% from the year-ago value to $56.86 million.

FTNT’s product revenue increased 21% year-over-year to $288.4 million, in the fourth quarter ended December 31, 2020. The company’s non-GAAP operating margin was 26.9%, representing an increase of 210 basis points from the year-ago value. FTNT’s net income was $146.7 million, up 24.1% from the prior-year quarter.

Past and Expected Financial Performance

RDWR’s revenue and tangible book value have increased at CAGRs of 5.8% and 7.1%, respectively, over the past three years. In comparison, the CAGRs of FTNT’s revenue and tangible book value has been 20.2% and 9.4%, respectively, over this period.

The Street expects RDWR’s revenue to rise 7.6% in the current year, and 9.1 % next year. The consensus EPS estimates indicate a 26.1% improvement in fiscal 2022. Moreover, its EPS is estimated to grow at the rate of 16% over the next five years. On the other hand, FTNT’s revenue is estimated to increase 18% in fiscal 2021 and 15.2% in 2022. Also, the company’s EPS is estimated to increase 14% next year and at the rate of 15% over the next five years.

Profitability      

FTNT’s trailing-12-month revenue is more than 10 times RDWR’s. But RDWR is more profitable with a gross profit margin of 82% versus FTNT’s 78%.

However, FTNT’s levered free cash flow margin of 29% compares favorably with RDWR’s 19%.

Valuation

In terms of trailing-12-month P/S, FTNT is currently trading at 12.20x, 146.5% higher than RDWR, which is currently trading at 4.95x. Also, its forward EV/EBITDA of 34.16x is 52.2% higher than RDWR’s 22.44x.

So, RDWR is the more affordable stock.

POWR Ratings

RDWR has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. However, FTNT has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

In terms of Value Grade, RDWR has a C. But FTNT’s Value Grade of D is reflective of its higher-than-industry P/E ratio.

RDWR has a Growth and Stability Grade of B, in sync with the expected increase in earnings and revenue. In comparison, FTNT has a C grade for Growth as well as Stability.

Of the 23 stocks in the D-rated Software – Security group, RDWR is ranked #3, while FTNT is ranked #10.

In addition to the grades we’ve highlighted, our POWR Ratings system has also rated both RDWR and FTNT for Sentiment, Momentum, and Quality. Get all RDWR ratings here. Also, click here to see the additional POWR Ratings for FTNT.

The Winner

As the demand for cybersecurity products both on-premise and in the cloud continues to rise, both RDWR and FTNT are good long-term investments. However, RDWR appears to be a better buy based on the factors discussed here. We think RDWR’s much lower relative valuation and favorable growth prospects should help it perform better in the near term.

Our research shows that the odds of success increase if one bet on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the top-rated stocks in the Software – Security industry. 

FTNT shares were trading at $197.05 per share on Friday afternoon, up $0.47 (+0.24%). Year-to-date, FTNT has gained 32.67%, versus a 9.82% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

More Resources for the Stocks in this Article