Today we have a moderately speculative idea.: take shares in Israeli cybersecurity software company Check Point Software Technologies (NASDAQ: CHKP), in order to capitalize on the rebound of these shares after their unjustified fall.
Growth potential and validity: 20% behind 14 Months; 35% behind 20 Months; 10% per annum during 15 years.
Why stocks can go up: they fell for no good reason, although the company's business is very cool.
How do we act: we take shares now by 113,49 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
This is an Israeli company, producing software in the field of cybersecurity.
We published an article with an idea for this company in September 2020, where we analyzed CHKP business, so we won't repeat ourselves here..
Arguments in favor of the company
Fell down. Since December 2020, the company's shares have dropped from 137 to 113,49 $ for no good reason. So,, we can pick stocks now in anticipation of a rebound.
Cool hackers. The company's quotes will be favored as the inevitable growth of the cybersecurity sector, and the speculative interest of investors in all companies in this area.
Especially since CHKP looks inexpensive and good: CHKP compares favorably with the bulk of players in the field of cybersecurity due to its profitability and low cost: P / E — 18,45. Think, this will already contribute to the influx of investors into the shares of the company - especially in connection with the fact, that the rate increase FED and the rise in the cost of loans will complicate the receipt of financing for unprofitable startups, working in this area. Profitable CHKP for many investors will look in this context as a good option to invest in the sector.
Wind of Opportunity. Given the profitability and overall greater stability of CHKP's business, an activist investor may appear among its shareholders, which will require paying dividends. I believe, that CHKP may well pay 4 $ dividend per share per year. This, moreover,, that its earnings per share are now about 5,56 $ in year, what with the current share price will give 3,5% per annum - fantastic profitability by the standards of the technology sector.
Not a fact, what dividends will be paid, and if they will, then they can be more modest. But in general, such an activist will have serious arguments in favor of introducing generous payments.: over the past few years, the company's shares have been marking time, while her business, objectively speaking, shows itself very well.
Can buy. Considering the merits of the company, especially its gigantic margin of 40% of revenue and not very large capitalization of $15.1 billion, it can be bought. Moreover, there are few profitable companies in this area..
What can get in the way
“There is a caravan from Iran…” Israeli company, with a large number of employees and assets in Israel. And that means, that in the event of a new round of conflicts between Israel and Palestine, the ESG lobby may ostracize CHKP shares.
Nothing changed. As before, the company has a disproportionate amount of sales from two unnamed third-party resellers: 22% on the first and 17% on the second. Changing the relationship with one of them can have a very bad impact on the company's reporting.
Do without payments. The company is now in a strategic transition to a subscription business model.. Therefore, CHKP management may refrain from introducing dividends, preferring to invest in the development of the subscription segment, buying up startups and improving the products offered by the company.
What's the bottom line?
Shares can be taken now for 113,49 $. Then there are three options:
- hold shares until 137 $. Think, we will reach this level in the next 14 Months;
- keep shares next 20 months - most likely, during this time CHKP will receive an offer to purchase by someone with a premium 35% to the current price. In my opinion, this is a rather modest goal, considering the enormous advantages of this business;
- if you last took these shares with a long-term view, now you can buy them. Since the last idea, the cybersecurity sector has become even more relevant, than before. Now the news about major hacks comes almost every day.
So you can safely take these shares for the next 15 years, To view, how this company will become Microsoft in the field of cybersecurity.
