This Market-Beating Tech Stock Is a Solid Bargain You Should Consider Now

Tech stocks have seen a heavy sell-off in 2022 amid rising interest rates and a macroeconomic slowdown, causing the Nasdaq-100 Technology Sector index to slide 43% so far. But cybersecurity specialist Check Point Software Technologies (CHKP 0.61%) has shown remarkable resilience amid the downturn.

Shares of Check Point are up 7% in 2022, driven by the stock’s recent surge thanks to a solid set of third-quarter results released on Oct. 27, 2022. The cybersecurity company reported steady growth in its revenue and earnings last quarter, which allowed it to beat Wall Street’s expectations. More importantly, Check Point’s Q4 guidance turned out to be better than expected, which explains why investors gave a thumbs up to its results and the stock soared.

Let’s take a closer look at Check Point’s quarterly performance and see why this cybersecurity stock could head higher.

Check Point Software is growing steadily

Check Point’s Q3 revenue increased 8% year-over-year to $578 million, driven mainly by impressive growth in the company’s subscription business. Check Point’s subscription revenue was up 13% year-over-year to $216 million, and the growing adoption of the company’s cybersecurity offerings also led to a nice increase in its future revenue pipeline.

More specifically, Check Point’s deferred revenue jumped 13% year-over-year to $1.65 billion. The faster growth of Check Point’s deferred revenue as compared to its actual revenue points toward a healthy top-line performance in the long run. That’s because deferred revenue is the amount collected in advance for services that will be provided later. The deferred revenue is recorded on the balance sheet as a liability when the money is received, and it is transferred to the income statement where it is recognized as revenue when the service delivery takes place.

The fact that Check Point’s deferred revenue grew at a faster pace than the top line last quarter means that more customers are signing up for its subscription-based cybersecurity offerings, especially its cloud-based security solutions. Check Point’s unified cybersecurity platform, known as Harmony, was also instrumental in the growth of the subscription business. Harmony allows Check Point customers to secure endpoints, email, mobile, data centers, and the cloud through one platform.

If Check Point is selling more of its Harmony subscriptions, it means that customers are buying multiple offerings from the company. As a result, Check Point’s revenue from each customer should head higher in the long run and boost the company’s margins. Check Point already enjoys healthy profit margins compared to its cybersecurity peers, and it could sustain this dominance thanks to the growth in its subscription business.

CHKP Profit Margin data by YCharts

More reasons to buy the stock

Check Point’s growth may not be as aggressive as that of its peers, but investors shouldn’t forget that the stock is quite cheap when compared to the cybersecurity industry’s standards. Check Point trades at just 21 times trailing earnings and 17 times forward earnings. Its price-to-sales ratio stands at 7.2. This is how these multiples stack up against rivals.

CHKP PE Ratio (Forward) data by YCharts

The company is expected to exit 2022 with a 7% jump in its revenue to $2.32 billion. Analysts estimate that Check Point’s earnings could increase by nearly 8% a year for the next five years. But don’t be surprised to see Check Point clock faster growth and outperform Wall Street’s estimates in the long run, as the healthy growth in the company’s deferred revenue balance indicates.

So investors looking to take advantage of the cybersecurity market’s growth can consider buying Check Point stock, as it is not only trading at attractive levels compared to its rivals, but also seems capable of delivering consistent growth in the future.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Check Point Software Technologies. The Motley Fool has a disclosure policy.

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