Is Radware Ltd. (RDWR) Worth a Look With an ERP5 of 3425?

The ERP5 Rank is an investment tool that analysts use to discover undervalued companies.  The ERP5 looks at the Price to Book ratio, Earnings Yield, ROIC and 5 year average ROIC.  The ERP5 of Radware Ltd. (RDWR) is 3425.  The lower the ERP5 rank, the more undervalued a company is thought to be.

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Altman Z

Radware Ltd. (RDWR) currently has an Altman Z score of 6.327741. The Z-Score for predicting bankruptcy was published in 1968 by Edward I. Altman, who was assistant professor of finance at New York University at that time. It measures the financial health of a company based on a set of income and balance sheet values. The Altman Z-Score predicts the probability that a firm will go bankrupt within 2 years. In its initial test, the Altman Z-Score was found to be 72% accurate in predicting bankruptcy two years before the event. In a series of subsequent tests, the model was found to be approximately 80%–90% accurate in predicting bankruptcy one year before the event.

EBITDA/EV stands at 0.019893. This multiple is similar to Earnings Yield, but here we use Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) as Nominator). By doing this, we can compare companies with a different capital structure and capital expenditures. This way it gives a much better idea of the value of a company compared to the popular P/E ratio. As O’Shaughnessy explaines:

“Stocks that have very high debt levels often have low PE ratios, but this does not necessarily mean that they are cheap in relation to other securities. Stocks that are highly leveraged tend to have far more volatile PE ratios than those that are not. A stock’s PE ratio is greatly affected by debt levels and tax rates, whereas EBITDA/EV is not. To compare valuations on a level playing field, you need to account for how a company is financing itself and then compare how relatively cheap or expensive it is after accounting for all balance sheet items.” – James P. O’Shaugnessy in What works on Wall Street

You can think of it as the taking all the revenue and subtracting the costs that solely go into running the business. The downside of EBITDA is that it can be abused by companies declaring as “one-off” costs things that should really be considered normal costs. We use the EBITDA of the last 12 months.

Earnings Yield is calculated by taking the operating income or earnings before interest and taxes (EBIT) and dividing it by the Enterprise Value of the company.  The Earnings Yield for Radware Ltd. (RDWR) is 0.009042.  Earnings Yield helps investors measure the return on investment for a given company.  Similarly, the Earnings Yield Five Year Average is the five year average operating income or EBIT divided by the current enterprise value.  The Earnings Yield Five Year average for Radware Ltd. is 0.009062.

The FCF Yield 5yr Average is calculated by taking the five year average free cash flow of a company, and dividing it by the current enterprise value. Enterprise Value is calculated by taking the market capitalization plus debt, minority interest and preferred shares, minus total cash and cash equivalents. The average FCF of a company is determined by looking at the cash generated by operations of the company. The Free Cash Flow Yield 5 Year Average of Radware Ltd. (RDWR) is 0.035918.

Price Index

We can now take a quick look at some historical stock price index data. Radware Ltd. (RDWR) presently has a 6 month price index of 0.987155. The price index is calculated by dividing the current share price by the share price ten months ago. A ratio over one indicates an increase in share price over the period. A ratio lower than one shows that the price has decreased over that time period. Looking at some alternate time periods, the 12 month price index is 1.223888, the 6 month is 0.987155, and the five year is 1.504318. Narrowing in a bit closer, the 3 month is 1.160817, and the 1 month is currently 1.040621.

Returns

Looking at some ROC (Return on Capital) numbers, Radware Ltd. (RDWR)’s ROC is 0.344258. The ROC 5 year average is 0.069087 and the ROC Quality ratio is 0.32241. ROIC is a profitability ratio that measures the return that an investment generates for those providing capital. ROC helps show how efficient a firm is at turning capital into profits.

Radware Ltd. (RDWR) has a Price to Sales ratio of 5.195631. Checking in on some other ratios, the company has a Price to Cash Flow ratio of 24.727962, and a current Price to Earnings ratio of 104.52. The P/E ratio is one of the most common ratios used for figuring out whether a company is overvalued or undervalued.

Book to Market

A ratio used to find the value of a company by comparing the book value of a firm to its market value. Book value is calculated by looking at the firm’s historical cost, or accounting value. Market value is determined in the stock market through its market capitalization.

Formula: Book-to-Market Ratio = Common Shareholders Equity Divided by Market Cap.

Radware Ltd. (RDWR) has a book to market of 0.298845 and an enterprise value of 803216.898.

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