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Why Check Point Software Technologies Stock Dropped 11.4% in November

By Steve Symington - Dec 5, 2017 at 7:33PM

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The network security leader fell after a strong quarter and weak guidance. But things weren't quite that simple.

What happened

Shares of Check Point Software Technologies Ltd. (CHKP 0.32%) fell 11.4% in November, according to data from S&P Global Market Intelligence, after the cybersecurity specialist posted reasonably strong quarterly results, but followed with disappointing forward sales guidance.

Nearly all of CheckPoint Software's decline last month came on Nov. 1 alone -- the first trading day after the company announced third-quarter 2017 results. More specifically, Check Point's quarterly revenue climbed 6% year over year to $455 million -- near the high end of the company's projections -- which translated to better-than-expected 15% growth in adjusted earnings per share, to $1.30. 

Metal padlock sitting on a circuit board. Cybersecurity concept image

IMAGE SOURCE: CHECK POINT SOFTWARE.

So what

Check Point founder and CEO Gil Shwed credited continued strength in adoption of the company's advanced threat protections for its growth. He also noted that Check Point extended the capabilities of its Infinity platform with enhanced anti-ransomware security, cloud security for Azure, and the integration of Microsoft Intune mobile management with Check Point's SandBlast mobile security product. 

Looking ahead to the fourth quarter, however, management told investors to expect revenue in the range of $485 million to $525 million, and adjusted earnings per share of $1.45 to $1.55. Analysts, on average, were looking for earnings of $1.48 per share, but on revenue around $5 million above the midpoint of Check Point's guidance range.

Now what

During the subsequent conference call, Shwed explained that third-quarter revenue was high in part because of the "Yom Kippur end-of-quarter effect." That is, the holiday fell in the last two days of the quarter, which caused higher-than-normal bookings as some orders were pushed forward from the fourth quarter.

In short, Check Point's third-quarter beat and fourth-quarter guidance shortfall were mostly matters of timing, and the latter isn't necessarily indicative of underlying business troubles.

It probably didn't help that Check Point stock was also up nearly 45% over the past year leading up to last month's report. So it's not terribly surprising that some skittish investors might want to take profits off the table. But as the dust settles, I think last month's post-earnings plunge will probably end up being a buying opportunity for patient, long-term shareholders.

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