Check Point Software: Stable And Reliable Cybersecurity Player

Kempano Investor profile picture
Kempano Investor
242 Followers

Summary

  • Check Point Software Technologies is a cybersecurity firm.
  • The competition in the market for information and network security solutions is fierce, and I believe that, due to the attractiveness of the industry outlook, it will only get fiercer.
  • I believe that Check Point Software owns some unique assets that make them a respected company and a serious competitor in the cybersecurity space.
  • I think that the stock can be categorized as a low-risk stock due to its low beta, high free cash flow margin, large cash in the bank, zero debt, and long and reliable operating history.
  • In my opinion, it's worth buying a 17 forward P/E low-risk stock in current unstable times with surging interest rates. Hence, I set the recommendation for this stock to "buy".

ogin and password, cyber security concept, data protection and secured internet access, cybersecurity

The best photo for all/iStock via Getty Images

Introducing Check Point Software

Check Point Software Technologies (NASDAQ:CHKP) is a cybersecurity firm. The firm provides security management services as well as solutions for network, endpoint, cloud, and mobile security. Enterprises, companies, and consumers are all customers of software expert Check Point. According to its annual report of fiscal year 2021, the Americas accounted for 43% of its sales, Europe for 45%, and Asia-Pacific, the Middle East, and Africa for 12%. About 5,000 people work for the company, which has its headquarters in Tel Aviv, Israel.

Industry Outlook

A few of the factors that drive the market expansion include the proliferation of smart devices, the rise in cyberattacks with the introduction of e-commerce platforms, and the implementation of cloud solutions. Furthermore, with the increased use of devices with IoT and intelligent technology, cyber risks might evolve.

In order to identify, mitigate, and limit the danger of cyberattacks, I believe that firms will acquire and deploy sophisticated cybersecurity solutions.

According to Fortune Business Insights data, the worldwide cybersecurity market is anticipated to increase at a CAGR of 13.4% from USD 155.83 billion in 2022 to USD 376.32 billion by 2029.

Competition

The competition in the market for information and network security solutions is fierce, and I believe that, due to the attractiveness of the industry outlook, it will only get fiercer in the coming years. Its rivals in the network security industry include many large companies such as Cisco Systems (CSCO), Fortinet (FTNT), Palo Alto Networks (PANW), and SonicWall (SNWL). Regarding certain products that Check Point Software offers, they also face competition from a number of other businesses, including Zscaler (ZS), McAfee, Trend Micro, NortonLifeLock (NLOK), Lookout, Zimperium, CrowdStrike Holdings (CRWD), SentinelOne (S), Sophos Group, Proofpoint, Broadcom (AVGO), Mimecast Limited, and Mandiant (MNDT).

Competitive Position

I believe that the long operating history of 29 years gives Check Point Software a strong and trusted brand name, which is an important asset in the cybersecurity industry, where trust is one of the key requirements to effectively compete. The long, reliable operating history increases customer loyalty as well. Underpinning this customer royalty, in one of the reviews on Gartner, a user stated that their company has been using Check Point Software for more than 20 years, and very happily so. This is a recurring element in reviews on their solutions.

Check Point is known in the industry for especially its robust firewall solutions. Check Point brought the first commercially available firewall to the market and has been continuously fine-tuning the service to this day, resulting in one of the finest products on the market. As a result, for the 22nd time, Check Point Software Technologies has been recognized as a leader in the market for network firewalls by Gartner.

Not only experts but also businesses are very keen on the solutions of Check Point, as over 100,000 businesses, including 90% of the Fortune 500, are protected by Check Point in more than 80 countries across the world. The fact that so many large enterprises choose Check Point's solutions out of the many choices available underpins the reputation and, with it, the competitive position of Check Point.

Furthermore, many other market analysts have also named Check Point Software as a leader in important segments of the cybersecurity market:

Check Point Leadership

Leadership Check Point (Latest annual report)

A review comparison of alternatives at Gartner shows that Check Point Software receives high ratings by its users as well.

The comparison also shows that a large number of large competitors show a similar or even higher rating, underpinning the fierce competition that Check Point Software finds itself in. For this reason, I don't believe that Check Point will dominate over all of its competitors.

Nevertheless, I believe that Check Point’s respected and fine-tuned cybersecurity solutions and trust by enterprises, users, and market experts put them in quite a decent spot in the market competition.

Valuation and performance statistics

I computed several valuation and performance statistics for Check Point Software and its competitors:

index

Forward P/E

Gross Margin

Free Cash Flow Margin

3Y sales growth

3Y EPS growth

Debt / Equity

Check Point Software

17.04

87.67%

54.98%

4%

5%

0.0

Cisco Systems

12.17

63.14%

26.31%

0%

4315%

0.23

Fortinet

58.82

75.46%

33.83%

22%

25%

4.54

Palo Alto Networks

55.25

69.34%

31.06%

23%

-

11.7

Zscaler

140.85

77.38%

19.00%

52%

-

1.89

NortonLifeLock

12.32

85.41%

47.32%

4%

3989%

nan

CrowdStrike

149.25

73.63%

29.45%

80%

-

0.7

Broadcom

12.42

64.42%

48.09%

9%

19%

1.88

Mandiant

39.68

46.38%

-1.35%

-6%

-

0.83

Source: Seeking Alpha

The competitors can be mainly split into two groups, the low P/E ratio and low revenue growth companies and high P/E ratio and high revenue growth companies, with Check Point Software being in the first group.

Check Point Software has the highest gross margin and the highest free cash flow margin in the industry.

Furthermore, it is the only company with no debt, which adds safety to owning the stock. As interest rates are rising, owning no debt is currently a huge advantage. Moreover, according to Yahoo Finance, the company has a 5-year monthly beta of 0.62, meaning its market-related price risk is quite low. Also, the company has a huge net cash position of $1.7 billion.

As the company generates a large amount of cash with no debt, it buys back a lot of shares each year, resulting in a consistent increase in EPS:

CHKP shares outstanding

Change in outstanding shares (Seeking Alpha)

The competitor comparison also shows the presence of a fierce competition, however, as many competitors grow at a much higher rate than Check Point Software does.

Despite the intense competition, I still believe that its revenue and EPS will grow at a similar rate to the historical rates due to the positive industry outlook and reliable competitive position of Check Point Software.

Final Take

Check Point Software has a reliable competitive position in the cybersecurity space. While I believe it won’t grow at a high rate due to intense competition, I do think it will continue its consistent growth due to its competitive strengths and an attractive industry outlook. I think that the stock can be categorized as a low-risk stock due to its low beta, high free cash flow margin, large cash in the bank, zero debt, and the long and reliable operating history. The stock only returned 21.17% in the last 5 years, and if you expect much more than that in the next 5 years, I think you might be looking at the wrong stock.

Nevertheless, I believe that it's worth buying a 17 forward P/E low-risk stock in current unstable times with surging interest rates. Hence, I set the recommendation for this stock to “buy”.

This article was written by

Kempano Investor profile picture
242 Followers
I believe that the goal of investment analysis is to basically assess the risk/return ratio and conclude whether an investment is under, over, or correctly valued. I do this by first categorizing the specific investment (value/growth/other), following by an extensive analysis that would fit that category. Such an extensive analysis would consist of as many as possible relevant qualitative and quantitative aspects that might impact the return and or risk of a specific investment. I especially like writing about undercovered high-growth tech stocks. It fascinates me to unravel the mystery and potential of such a stock. However, I also enjoy switching it up, learning as much as possible about all types of investments, types of risks, types of returns for all types of investors. The markets have too many interesting investment opportunities, that it would be a waste to just focus on a small part of it.  My goal is to fairly, extensively, and accurately analyze investments and present them to my reader in such a way as well.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.