Wall Street analysts are generally a bullish bunch, but it's still quite uncommon for them to all agree that a stock is headed higher. But one cybersecurity stock fits the bill, making it worth a closer look.
The lowest price target on Wall Street for Check Point Software (CHKP +1.09%) sits at $195, about 8.6% above its market price as of this writing. Interestingly, more analysts say the stock is a Hold instead of a Buy. That may be because it's not growing as quickly as some of its competitors in cybersecurity. But the slower, steadier growth of Check Point could mean a bigger payday for patient, long-term investors.
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A value in cybersecurity
Cybersecurity is a growing industry as more companies shift operations from on-premise equipment to the cloud. That's accelerated in recent years as more companies support remote work, requiring more software-based security protocols to prevent unauthorized access to proprietary data and systems. That's also pushed enterprises to consolidate their security systems with a single provider, making it easier to manage.
That's led many cybersecurity companies to spend aggressively to acquire technology and market their services. Check Point has historically been much more conservative in its strategy, keeping operating expenses and capital investments low. As a result, its adjusted operating margin of 42% last quarter is one of the best in the industry.
NASDAQ: CHKP
Key Data Points
But the company is starting to ramp up spending. It recently acquired Lakera, a security platform specializing in AI agents. Additionally, it's increasing spending on R&D and sales and marketing, focused on building out its software-based solutions for endpoint security (for remote workers) and security operations (to identify and mitigate attacks across devices). Both have much higher margins than its legacy firewall hardware business.
That said, the hardware business remains a key source of strength for Check Point. Its Infinity platform brings together all of its products, enabling enterprises to consolidate their cybersecurity needs with Check Point, a major focus for many customers. With its leading position in hardware, it's well positioned to grow its software business while spending more on marketing and R&D. As a result, the company is poised for strong earnings growth, even if it's still not growing its top line as quickly as more aggressive competitors.
Indeed, analysts see Check Point growing revenue at a steady mid-single-digit growth rate over the next couple of years. Earnings might not grow as quickly as management spends to stave off competition and grow its software business, but operating margin should remain relatively stable near its industry high. With the stock trading at a forward P/E of just 16.7, it's no wonder analysts think it's undervalued. While it doesn't offer nearly as much upside as other cybersecurity stocks, it doesn't carry nearly as much downside either.
