While there is fear that growth in cyber-security start-ups like Check Point Software (NASDAQ: CHKP) and Crowdstrike (NASDAQ: CRWD) is slowing, the industry is still growing at a high-double-digit rate, and opportunities are developing. Check Point, for one, offers a deep value that makes it stand out from Crowdstrike, among others. Trading at only 16X its earnings, its valuation is closer to blue-chip cybersecurity firm Norton-Lifelock (NASDAQ: NLOK) than high-flying Crowdstrike, which is trading above 150X its earnings. And then there’s ZScaler (NASDAQ: ZS), trading at over 250X its earnings, a valuation investors will find hard to rationalize over the coming few quarters. The takeaway for investors is that cyber security is a long-term investment opportunity, but not all cybersecurity stocks look like good buys right now.
There’s Value In Check Point Software Technologies
“Over the past quarter, cyber-attacks have increased by 32 percent while advanced attacks like ransomware have grown by 59 percent, underscoring why cyber-security is so critical to keep our world going. Our strategic vision of consolidated prevention-first security architecture is more relevant than ever to combat today’s cyber challenges,” says Gil Shwed, Check Point founder and CEO.
Check Point Software Accelerates Growth
Check Point Software is among the slowest growing of the new-aged cybersecurity firms, but it has something the others don’t. While Crowdstrike and Zscaler are faced with rapidly deteriorating growth in the face of ever-toughening comps Check Point Software is actually accelerating its growth both sequentially and versus last year. The company reported $571.1 million for the 2nd quarter, which is up 8.6% versus last year and accelerated from 7% in the previous quarter and 4% last year. The gains were made in Product & Licensing and Security Subscription sales which grew by 12% and 14%, respectively. The only area of weakness was in Updates and Maintenance which grew by a tepid 2.25% .
Moving on to the income, the news is a little mixed but ultimately supportive of the stock price. The company reported a 500 basis point contraction in the operating margin on both a GAAP and adjusted basis which is slightly worse than expected but not enough to offset the revenue strength. On the bottom line, the GAAP EPS fell by 1% YOY but the adjusted EPS grew 2% and beat the Marketbeat.com consensus by $0.03. The bottom line results were aided by share repurchases as well, with 2.6 million shares or about 1% of the float bought back during the quarter.
Check Point Software did not give any formal guidance for the coming quarters but did give a favorable update on deferred revenue. Deferred revenue is up 13% versus last year, which suggests to us revenue growth is still accelerating for this company.
The Technical Outlook: Check Point Software Falls To Support
Shares of Check Point Software fell more than 5.0% in the wake of the earnings report, but it looks like a bottom is in. The price action fell to the key support at $117.50 and bounced to form a Doji Candle. The Doji is a sign of indecision but one that also shows support at $117.50, support that should keep the stock moving sideways over the next few weeks to 3 months. Assuming this is so, the stock should begin to recover by the end of the year, providing there is no major deterioration in broader economic conditions. If the $117.50 level fails, however, the stock could fall back to the $110 level before finding a long-lasting bottom.