Top Picks 2021: Check Point Software Technologies (CHKP)

01/12/2021 5:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

Check Point Software Technologies (CHKP) is a pure-play cybersecurity vendor; it's CEO, Gil Shwed, is known as the inventor of the modern firewall, asserts Ingrid Hendershot, editor of Hendershot Investments.

With over 73 patents, Check Point’s groundbreaking technology remains the gold standard for network security. In 2017, the company introduced Check Point Infinity, the first consolidated security solution across networks, clouds, endpoints and mobile platforms.

With the 2018 acquisition of Dome9, Check Point enhanced its platform by adding security and compliance solutions for multi-cloud deployments.

Check Point Software generated solid growth during the past five years with revenue and EPS compounding at 5% and 10% annual rates, respectively.

Check Point’s highly profitable operations consistently deliver net profit margins exceeding 40% and returns on shareholders’ equity hovering around 20%. The security subscription portion of the business is very profitable, with 33% of total revenue now coming from security subscriptions.

Check Point Software has a safe and secure balance sheet with no long-term debt. Check Point has operated debt-free for over a decade.

With minimal capital expenditure needs, Check Point Software generates strong free cash flows which have exceeded $1 billion annually over the last three years.

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Check Point Software has made providing solutions for COVID-19 related attacks a top priority for fiscal 2021. Since business lockdowns occurred, there has been a significant escalation in cyber threats.

With 81% of enterprises adopting mass remote working and 74% planning to enable remote work permanently, this offers a great opportunity for Check Point. The company is positioned to gain and retain customers which need to deliver secure remote connectivity on a massive scale for their employees.

Check Point Software Technologies checks all of our boxes for a high quality, long-term investment given the firm’s innovative leadership, highly profitable growth, secure balance sheet and strong cash flows, while providing essential services for global businesses.

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