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Why Check Point Software Stock Crashed Today

By Rich Smith - Feb 3, 2021 at 5:15PM

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The cybersecurity specialist beat on earnings, then its stock fell. Wait. What?

What happened

Despite reporting a sizable earnings beat this morning, Israeli network security provider Check Point Software Technologies (CHKP 1.71%) saw shares of its stock close 10.5% lower today.

Expected to earn $2.11 per share, pro forma, on sales of $555.4 million in its fiscal Q4, Check Point reported Wednesday morning that it had earned $2.17 per share pro forma on sales of $563.8 million.  

Cartoon characters confused by stock chart arrow falling and crashing into floor

Image source: Getty Images.

So what

Quarterly sales grew 4% at Check Point. Pro forma profits grew 7%, and earnings as calculated according to generally accepted accounting principles (GAAP) grew 6%, coming in below the pro forma number at $1.95 per share.  

Similarly for the year, sales ended up 4% higher in 2020 than in 2019 -- $2.1 billion. Profits actually grew a bit faster for the year as a whole, however (indicating that things slowed down toward year-end -- one possible reason investors might be upset). Pro forma profits for the year increased 11%, and GAAP profits grew 10% -- $5.96 per share.

Check Point CEO Gil Shwed pronounced himself pleased with the results, but investors -- less so.

Now what

Guidance may be another part of the problem. Consistent with the apparent deceleration in business growth in Q4, Check Point is guiding investors to expect somewhere between $1.45 and $1.55 per share in profits in Q1 2021. Taken at the midpoint, that appears to fall short of analysts' consensus $1.51 per-share forecast. This is curious, because Check Point is actually predicting sales will come in stronger than Wall Street has forecast -- between $485 million and $550 million, ahead of consensus projections for $502 million.

Worse, for the year as a whole, Check Point predicts earnings between $6.45 and $6.85. The entirety of that range falls shy of analysts' hoped-for $6.92 in fiscal 2021 earnings. Again, Check Point sees sales exceeding expectations for $2.1 billion this year, predicting it will actually see between $2.2 billion and $2.8 billion in business.

For a change, though, investors seem to be ignoring the good news on sales, instead punishing Check Point for not earning enough profit on those sales.


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