Abstract showing network defense.

Image source: Getty.

Though it was a surprise to some given the 9% jump in share price since announcing earnings on Jan. 19, Check Point Software's (CHKP 0.08%) strong fourth quarter and fiscal year was a product of CEO Gil Shwed's strategic plan. Rather than spend indiscriminately as peers Palo Alto Networks (PANW 2.99%) and, to a lesser extent, Fortinet (FTNT 1.07%) do, Check Point has opted to be more like the tortoise than the hare.

No flashy quarters of 30% plus revenue gains, just a steady increase in overall sales with an emphasis on one of Check Point's greatest strengths: building a foundation of recurring revenue. What makes Check Point a solid investment even as its stock hits a 52-week high is that it should continue to deliver in the three areas that drove last quarter's results.

Image source: Check Point Software.

First, the good news

Check Point ended its fourth quarter much as it did for the year, revenue growth of 6% and 7%, respectively. That may not impress Palo Alto fans following its 34% increase last quarter to $398.1 million in revenue, or Fortinet shareholders with its 22% jump to $316.6 million, but pundits and investors didn't mind.

Not only did Check Point chime in with another consistent year of sales, its quarterly revenue of $487 million was well above analyst estimates of $478 million. That revenue "beat" certainly played a part in Check Point's stock closing up over 7% after sharing the good news. Check Point's consistent, if not spectacular, top-line growth was nice, but it was how it achieved it that bodes well for the future.

Now, the better news

Shwed's made no secret of his intention to drive subscription sales and enjoy the recurring revenue that comes along with it. One peek at the last quarter and year is a clear indication the plan is working like a charm. Though product, license, and software update sales continue to make up the largest pieces of Check Point's software revenue pie, subscriptions are gaining fast.

An important component in last quarter's 6% total revenue increase was the whopping 26% jump in subscription sales to $110.5 million, even as product and software update sales merely inched up year over year. Better still, Check Point reported a 22% increase in the key metric for the year to $389.9 million. Which means not only did recurring revenue from subscriptions pop last quarter, the foundation-building efforts are gaining momentum.

Check Point's successful business model transition should be music to the ears of risk averse investors or those that prefer a stock that boasts a relatively reliable, steady source of revenue that falls to the bottomline. Relying on sky-high revenue gains at the expense of profits is Palo Alto Networks' and Fortinet's world, and as subscription sales continue to climb, the differences will become even more pronounced.

Surprise, surprise

Check Point's cost management is a significant differentiator from Palo Alto and Fortinet as evidenced by last quarter's sales and marketing-related costs. Check Point's equaled 24% of sales. By comparison, Palo Alto spent 55% of its $398.1 million to fund its sales efforts while Fortinet forked out 49% of its $316.65 million in quarterly revenue. Expenses were also a factor in Check Point's impressive 21% jump in earnings per share last quarter to $1.46, after removing one-time items.

If Check Point's 6% revenue improvement drew a smile from analysts, its EPS really had them beaming. Consensus estimates were for $1.25 per share earnings, a target Check Point surpassed by 17%. For the year, Check Point's $4.72 EPS was a 13% increase from a year ago. Just as its subscription sales are on the rise, so too are Check Point's earnings.

Growth where it counts, all-important subscription sales, and watching costs to boost the bottom line were three reasons Check Point stock is flying high with no end in sight.