Please ensure Javascript is enabled for purposes of website accessibility

Is It Time to Buy This Beaten-Down Cybersecurity Stock?

By Harsh Chauhan – Nov 9, 2021 at 10:41AM

Key Points

  • Check Point Software raised its full-year guidance after its latest earnings report.
  • The company's products are gaining impressive traction.
  • The faster pace of growth in its subscription revenue and an attractive valuation make it an enticing stock to buy.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There are signs of acceleration in this cybersecurity company's business.

Check Point Software Technologies (CHKP 1.85%) stock is showing some signs of accelerating, and its third-quarter results turned out to be better than expected thanks to the improving pace of growth in the subscription business and the stronger adoption of its offerings. The cybersecurity specialist also raised its full-year guidance.

Check Point stock is still down about 11% for the year, but it could finish 2021 on a strong note driven by its latest quarterly report, released on Oct. 28. What's more, a closer look at the company's metrics indicates that it is built for long-term growth. Let's look at the reasons why.

Man with glasses looking at a line chart on a laptop.

Image source: Getty Images.

Check Point Software is switching into a higher gear

Check Point has a history of being a conservative cybersecurity company content with buying back stock and delivering slow revenue growth instead of going aggressively after the end-market opportunity. However, things have started changing of late as Check Point has started spending more money on research and development and marketing. It is also making acquisitions to expand its reach within the cybersecurity space.

The company's third-quarter revenue increased 5% year over year to $534 million, exceeding the midpoint of its guidance range. Even better, its earnings of $1.65 per share surpassed the higher end of its guidance range. Wall Street was expecting $1.60 per share in earnings on $530 million in revenue from Check Point.

More importantly, Check Point now expects full-year revenue of $2.13 billion to $2.17 billion, while earnings are expected to land between $6.81 and $7.01 per share. The company had originally expected 2021 earnings to land between $6.45 and $6.85 per share on revenue of $2.13 billion at the midpoint of its guidance range. The updated guidance shows that demand for Check Point's offerings is picking up momentum. What's more, a look at some other metrics will make it clear that Check Point is on its way to growing at a faster pace in the future.

These metrics point toward a brighter future

Check Point's deferred revenue in the third quarter increased 12% year over year to $1.45 billion, outpacing the growth of its actual revenue. The deferred revenue refers to the money collected by a company in advance for services that will be rendered later.

The faster pace of growth in Check Point's deferred revenue bodes well for the future, as it indicates that customers are spending more money on its solutions. The company points out that the adoption of its Infinity consolidated cybersecurity architecture was up 172% year over year in the third quarter of 2021, compared to 81% year-over-year growth in the prior-year period.

Meanwhile, Check Point's security subscription revenue increased 13% year over year to $190 million during the quarter, up from the 10% growth it reported in the same period last year. The subscription revenue was driven by double-digit percentage growth in the Harmony and CloudGuard products, which address endpoint security and the cloud.

All of this indicates that Check Point is pulling the right strings to boost growth, and the company's cash pile of $3.8 billion could play a key role in that regard by helping it make more acquisitions. It reportedly spent between $250 million and $300 million to acquire cloud email security provider Avanan in August this year.

The acquisition has brought 5,000 Avanan customers into Check Point's fold, and it gives Check Point access to the email security market, which is expected to grow at an annual rate of 16% through 2025, hitting $6.8 billion in revenue. Acquisitions such as these could strengthen Check Point's growth, as the company now has a new solution to offer to its existing customers, increasing the possibility of cross-selling.

The valuation is attractive

In all, Check Point looks set to maintain its momentum, which makes it an enticing stock to buy right now given its cheap valuation. Check Point's trailing earnings multiple of 19.6 is significantly lower than the S&P 500's multiple of 29, making it an ideal contender for investors looking to buy a cybersecurity stock right now.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.