Among the more established leaders in the fast-growing cybersecurity industry is the Israeli-American Check Point Software Technologies Ltd (CHKP, Financial). Check Point has impressive margins, and I believe its conservatively managed balance sheet, in combination with its leading cybersecurity technologies and established market present, could help propel the company and its shares even faster than the overall industry in the coming years.
Market growth
Cybersecurity is the future of defense. Governments, businesses, medicine, transportation and every other computerized service will not survive the migration to the cloud without sufficient data protection. Fortune Business Insights claims the global cybersecurity market is on track for a CAGR of 13.4% to surpass $376 billion by 2029.
According to Datto, the 10 most common types of cyberattacks are malware, phishing, man-in-the-middle (MitM) attacks, denial-of-service (DOS) attacks, SQL injections, zero-day exploits, password attacks, cross-site scripting, rootkits and Internet of Things (IoT) attacks. In 2022, hackers attacked railway operations, airports, media companies and government agencies.
Company profile
Check Point’s business plan is neat and to the point; it develops, markets and supports network, endpoint and data cybersecurity software. Services include management and organization assessments, solutions and training. Its primary target sectors are 50% software and 38% internet software services.
Its Quantum segment offers real-time prevention and high-performance security bulwarks. CloudGuard prevents advanced threats to control any workload across any cloud. Check Point's Harmony protects data and access for remote users’ devices. Infinity-Vision ensures breach prevention across networks, clouds, mobile, endpoint and workloads, shutting down attacks fast.
Management tends to be conservative in its approach to business. For instance, Check Point has acquired just one company in the last five years, Avanan, in August 2021). It has made a total of 17 acquisitions since its 1993 founding.
Check Point would be able to aggressively pursue M&As if it so wished. In my opinion, management is too conservative in this torpid period of inflation and lower valuations.
Valuation
As of this writing, Check Point's market cap is $16.36 billion. Short interest is less than 2%. Shares sell for $124.06 apiece; this is about the midpoint between that stock’s 52-week high of $149.62 and low of $107.85. The share price has recently moved in concert with the stock market and tech stock trends.
The GF Value is $142.67. GuruFocus classifies the stock as mostly undervalued.
It gets a remarkable 99 out of 100 GF Score for high profitability, growth potential, GF Value and financial strength, with the weakest area being momentum.
Check Point reported strong first-quarter results in April 2022. Revenue grew 7% year over year, substantially beating the consensus estimate. Products and licenses grew 6%, and security subscriptions were up 13.6% year over year. Quantum, CloudGuard and Harmony products were best sellers in the first quarter.
The company finished last quarter holding $3.8 billion in cash and equivalent. Its gross profit margin is 87.67%. The net income margin is 36.43%. Check Point’s margins are among the highest in the cybersecurity industry, and it is profitable. It has a forward non-GAAP price-earnings ratio of 17.72 based on earnings estimates. I expect revenue and earnings per share to increase during 2022 and into 2023.
Hedge funds increased their holdings in Check Point by ~40,000 shares last quarter. Corporate insiders neither made any major purchases nor sales of shares; insiders own about 20% of the shares, worth more than $3 billion.
I am moderately bullish on Check Point, primarily because the tech industry is volatile and Check Point has both an attracticve product lineup and a solid balance sheet. I believe a 12% to 14% share price increase is possible over the next 12 months.
