Check Point Software Technologies (NASDAQ:CHKP) plies its trade in the fast-growing cybersecurity market -- a market that's expected to hit $96 billion in revenue this year, an increase of 8% over 2017, according to Gartner's estimates. However, one look at the cybersecurity specialist's recent performance indicates that it hasn't been able to capitalize on that vast potential.

For instance, Check Point's top line grew just 4% year over year during the quarter that ended in Dec. 2017. This was a result of several factors, including a reduction in product and license revenue, and continued weakness in the American market. The company has altered its sales and marketing strategy to better contend with rivals in this highly competitive space, but the changes will need time before delivering results.

However, investors' patience could pay off in the long run -- there's a lot to like about Check Point's business that could help get its growth back on track. 

Abstract cybersecurity shield

Image source: Getty Images

Financially strong

Check Point Software has a robust balance sheet with a cash position of $1.41 billion and no debt. Additionally, it generated just over $1 billion in free cash flow in fiscal 2017. So Check Point has solid financial muscle, and it can even access the debt markets if it needs more money to boost sales through marketing or product development.

Another factor that will play in Check Point's favor is its superior margin profile as compared to its industry peers.

Company Operating Margin (TTM) Profit Margin (TTM)
Check Point Software 49.8% 43.3%
Palo Alto Networks (6.4%) (10.0%)
FireEye (32.8%) (40.4%)

Data Source: Yahoo! Finance, TTM = trailing twelve months

As such, it can afford to market its services more aggressively by way of discounts or other freebies in a bid to increase sales and capture a greater portion of the cybersecurity market. Fortunately, Check Point seems to have realized that it needs to boost its marketing spend, so it enhanced the same by 3% last fiscal year.

This wouldn't move the needle much, as rival Palo Alto increased its sales and marketing expenses by 17% during the first half of the fiscal year. However, given Check Point's solid financial resources, it won't be surprising if it decides to step on the gas and give its marketing team more money to play with.

In fact, Check Point recently admitted that it will follow a more aggressive marketing plan this fiscal year, but investors shouldn't expect any quick gains. The new plan will need some time before bearing fruit.

Subscription growth will lead to stronger margins

I have already mentioned that Check Point has a really strong margin profile when compared to rivals. Looking ahead, its margins could keep improving thanks to the growing contribution of the subscription business.

Now, it costs less to service and retain a subscription customer than acquire a new one, so the increase in the number of subscription customers bodes well for Check Point. The good news -- the company's subscription-based revenue has started gaining critical mass, as evident from the 18% revenue jump from this segment last quarter. This was driven by an increase in the average transaction size, with the number of $1 million-plus customers increasing 11% year over year to 110.

What's more, subscriptions and the software updates businesses together supply 67% of Check Point's total revenue. So there's a lot of room for growth over here that should boost the company's bottom line, driven by the increase in the deal size and a potential increase in the number of subscription customers.

What's in it for investors?

Check Point Software's impressive valuation makes it a solid pick for investors looking to get into the cybersecurity space without paying too much. The stock's price-to-earnings (P/E) ratio of 21x is substantially lower than the industry's more than 100x multiple. Meanwhile, the forward P/E ratio of 17x is an indicator of bottom-line growth.

At this valuation, Check Point Software looks like a good bet considering analysts expect its earnings to grow at a CAGR (compound annual growth rate) of almost 10% for the next five years. However, it won't be surprising if Check Point logs stronger growth by enhancing its marketing spend to attract more customers and develop a bigger contribution from the subscription business.