Check
Point Software Technologies Ltd. (CHKP): “Sliding
Down Hill or Growing Even Higher?”
By:
Yiqiu (Ethan) Zhu, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Check Point Software Technologies Ltd. (NASDAQ: CHKP) is an
information technology security solutions provider, which develops technologies
to secure communications and transactions over the Internet by enterprises and
consumers. The company offers their customers an extensive portfolio of network
security, endpoint security, data security and management solutions.
• As the amount of
connections in the Internet increase in the future, the risk for an enterprise
or an individual getting hacked is increasing.
• The increasing risk of
cyberattack create a huge demand for cyber security products and services.
• The rapidly change in
hacking technologies will increase the amount of upgrades and maintenance done
by Check Point’s customer, which will have a strong positive effect on Check
Point’s total revenue.
Key
points: The demand for cyber security is in direct proportion
to the amount of connections in the Internet. With countless new
connections formed every day, the world is more linked than ever. Cloud,
virtualization and the Internet of Things (“IoT”) are changing the way
customers deploy and consume technology. Enterprises have more opportunities
than ever before to innovate and compete more efficiently. However, the greater
amount of connections largely increases the risk of cyberattacks.
As a result of this
increasing risk of cyberattacks, the demand for the cyber security products or
services will keep growing in the future. According to Check point’s management
team, they stated that the demand for cyber security will increased in the
following area: Remote Connectivity, Cloud Computing, Network Virtualization,
and Data Privacy.
In addition, with
increasing level of connectivity in the Internet and rapid rate of technology
growth, the technologies hackers used to attack an enterprise are also changing
rapidly. Therefore, companies who are using check point’s products will require
more upgrades and maintenance than before. Since upgrades and maintenance are Check
Point’s biggest revenue segment, there is strong growth potential in Check
Point’s future revenue.
What
has the stock done lately?
Recently, CHKP has
increased 8.75% in value over an 18-day period. The Stock price increased from
$76.2 on October 17th to $82.65 on Nov 4th. The jump in
price is mostly due to a positive surprise in CHKP’s Q3 earnings report. On
October 31st 2016, The company reported $1.13 earnings per share for
the quarter, topping the consensus estimate of $1.08 by $0.05. As a result of
the EPS surprise, CHKP reached its one month high of $84.56 on October 31st
2016. Since that, the price slowly
dropped to around $82 per share.
Past
Year Performance: CHKP’s stock
price had been bouncing up and down a lot over the past year, but the stock
price stayed mostly in a $75 to $85 price range. Over the past year, CHKP
increased 1.19% in value. The highest price over the past year is $89.66 and
the lowest is $72.76. Compare to the upward slopping trend during 2013 to 2015,
the stock price in 2016 seems like it is adjusting itself to find a fair value.
Source: FactSet
My
Takeaway
Since CHKP got added into
the AIM International Fund, it had been a great performer. Although the stock
price had been moving up and down between $75 and $85 for almost a year, I
believe this is just a temporary adjustment. With disruptive technologies such
as Internet of Things, Big Data, Virtual Reality, and Cloud Computing to help
us create a more connected and data-focused world, the demand for cyber
security will also skyrocket. Therefore, I believe the future market condition
for CHKP is very beneficial and CHKP should continue to be a holding in the AIM
International Fund.
Source: FactSet
