Share prices of Check Point Software Technologies (CHKP 1.44%) slipped more than 6% following the release of the company's first-quarter 2022 earnings report on April 27. That may seem a tad surprising, as its numbers were better than what Wall Street was looking for.
However, the mixed guidance sent the cybersecurity specialist's stock tumbling. But this could be an opportunity for savvy investors to buy shares of a company that has done well in the face of the stock market sell-off this year. Let's see why it would be a good idea to buy Check Point Software stock while it is still down.
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Check Point Software's growth is gaining momentum
Check Point reported Q1 revenue of $543 million, an increase of 7% over the prior-year period, while non-GAAP earnings improved 2% year over year to $1.57 per share. Analysts were looking for $1.54 per share in earnings on $534 million in revenue. It is also worth noting that Check Point's revenue and earnings came in at the higher end of its guidance range, as the company had originally guided for $1.48 to $1.58 per share in earnings on $517 million to $547 million in revenue.
The acceleration in Check Point's subscription business played a key role in its better-than-expected results. The company recorded a 14% year-over-year increase in sales of security subscriptions during the quarter, an improvement over the 12% growth it had logged in the same period last year.
What's more, robust demand for Check Point's cybersecurity offerings such as firewall appliances led to a 6% increase in sales of its products and licenses. That's a nice improvement over the 1% revenue decline the product business had witnessed in the year-ago period. But the guidance is where things went sour for Check Point.
The company has guided for $1.60 per share in earnings on $560 million in revenue for the second quarter at the midpoint of its range. While the top-line guidance is ahead of the $556 million consensus estimate, the earnings guidance falls short of the $1.65-per-share expectation.
However, investors shouldn't be reading too much into the earnings guidance right now for a couple of reasons. First, Check Point expects earnings to land between $1.55 per share and $1.65 per share this quarter. Given the company's history of beating estimates and reporting earnings at the higher end of its range, it won't be surprising to see it deliver better numbers.
Second, Check Point is focused on capturing a bigger share of the cybersecurity market. The company has hiked its spending on boosting the sales force, which explains its improving revenue growth. The company's operating expenses increased nearly 17% year over year last quarter to $342.5 million, outpacing the growth in its revenue. Check Point increased its outlay on research and development and selling and marketing expenses last quarter, a trend that's likely to continue for the remainder of the year.
Check Point intends to increase its front-line sales force by 25% in 2022, and it is close to achieving half of that target. The good part is that the higher spending will improve Check Point's pace of growth, which is evident from a closer look at a few important metrics.
These metrics point toward better times ahead
Check Point management points out that there has been a 54% year-over-year increase in weekly cyberattacks across the globe. Meanwhile, one in every 53 organizations is impacted by ransomware attacks, with the incidence of attacks increasing 24% over the prior year in the first quarter.
This end-market opportunity and Check Point's moves to enhance its sales force and R&D are helping the company build a solid revenue pipeline for the long run. This is evident from the increase in the company's deferred revenue, which is the money collected in advance for services that will be delivered later.
Check Point's deferred revenue was up 14% year over year in Q1 to $1.67 billion. Meanwhile, the company's remaining performance obligation -- which represents the total of the deferred revenue plus the bookings that have not been invoiced by the company yet -- increased 20% year over year. As such, Check Point investors should be focusing on the bigger picture, as the company's bottom-line weakness isn't expected to last long.
Analysts expect Check Point's earnings to increase 10% next year following this year's muted jump of 2.8%. That's why it may be a good idea to use the drop in Check Point shares as a buying opportunity, as it is trading at just 20 times trailing earnings, a discount to the S&P 500's multiple of 24.
