Why I'm Giving Radware One Last Chance

May.16.07 | About: Radware Ltd. (RDWR)

On Friday afternoon I was about to pull the trigger and sell Radware (NASDAQ:RDWR), figuring that I can at least use the loss to offset some capital gains that I have realized. Just as I was doing my final research, I got an alert from Morningstar that RDWR had been named in the Three Small-Cap Stocks for a Slugger's Portfolio. UUGH!!!

RDWR is an Israeli company in the red-hot space of providing hardware and software for application switching, that quarter after quarter has disappointed investors with one earnings warning after the other. The company has pinned the lack of strong growth on problems with its North American sales force for a few years. And now, once again, they are reorganizing the North American sales team. This would be palpable if not for the fact that the industry they are in won’t cool off. Their main competitor, F5 Networks [FFIV] has outperformed RDWR by about 60% in the last 12 months and by about 400% in the last 5 years. Each new announced reorganization brings with it the hope that finally RDWR investors can make some money, only to be met with another earnings shortfall.

Now along comes Morningstar saying:

We think these problems have brought the stock down to a level where the potential reward from investing in this Israeli-based technology firm outweighs the risk that the firm will not get its sales force in order.

Most interesting in their analysis, though, is that the company has more than $8 per share in cash. Analyst John Slack notes:

Net of this cash position, the company is trading at less than 2007 sales given its current share price, a rare value, in our opinion, in one of the more attractive niches of the networking equipment industry.

Okay, I will hold off on the sell order one final time and give them until the end of the year to show me something, or else, in the words of the Soft Cell’s classic hit, Tainted Love, "I cannot stand the way you tease, Babe I love you though you hurt me so, Now I'm gonna pack my things and go.”

RDWR 1-yr chart

RDWR

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