The stock of Check Point Software Technologies (NAS:CHKP, 30-year Financials) shows every sign of being modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $116.85 per share and the market cap of $15.8 billion, Check Point Software Technologies stock gives every indication of being modestly undervalued. GF Value for Check Point Software Technologies is shown in the chart below.
Because Check Point Software Technologies is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 9.3% over the past three years and is estimated to grow 3.66% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Check Point Software Technologies has a cash-to-debt ratio of 10000.00, which ranks better than 100% of the companies in Software industry. Based on this, GuruFocus ranks Check Point Software Technologies's financial strength as 9 out of 10, suggesting strong balance sheet. This is the debt and cash of Check Point Software Technologies over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Check Point Software Technologies has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.1 billion and earnings of $6.08 a share. Its operating margin is 44.03%, which ranks better than 98% of the companies in Software industry. Overall, the profitability of Check Point Software Technologies is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of Check Point Software Technologies over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Check Point Software Technologies's 3-year average revenue growth rate is in the middle range of the companies in Software industry. Check Point Software Technologies's 3-year average EBITDA growth rate is 3.3%, which ranks in the middle range of the companies in Software industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Check Point Software Technologies's ROIC is 17.54 while its WACC came in at 5.42. The historical ROIC vs WACC comparison of Check Point Software Technologies is shown below:
Overall, The stock of Check Point Software Technologies (NAS:CHKP, 30-year Financials) is believed to be modestly undervalued. The company's financial condition is strong and its profitability is strong. Its growth ranks in the middle range of the companies in Software industry. To learn more about Check Point Software Technologies stock, you can check out its 30-year Financials here.
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