Today we have a moderately speculative idea: take shares in an Israeli cybersecurity software company Check Point Software Technologies (NASDAQ: CHKP), in order to capitalize on the rebound of these stocks after their unjustified fall.
Growth potential and duration: 20% for 14 months; 35% for 20 months; 10% annual 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. Hopefully, you know, what to do.
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 are we writing, Are forecasts and hypotheses, not a call to action. It is up to you to rely on our thoughts or not..
And what about the author's predictions
Research, for example 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 perform better than people, but alas, they work worse.
Therefore, we do not try to build complex models.. The profit forecast in the article is the author's expectations. We indicate this forecast as a guideline. As with the investment 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, cybersecurity software manufacturer.
We published an article with an idea for this company in September 2020., where we analyzed the CHKP business, so we will not 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. Which means, we can pick up 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 speculative interest of investors in all companies in this area.
Moreover, CHKP looks inexpensive and good: CHKP compares favorably with the bulk of cybersecurity players in terms of profitability and low cost: P / E — 18,45. I think, already this will contribute to the influx of investors into the company's shares - 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 field. A profitable CHKP for many investors will look in this context as a good option to invest in the sector..
Wind of Opportunity. Considering the profitability and overall stability of the CHKP business, an activist investor may appear among its shareholders, which will require paying dividends. I think, that CHKP may well pay 4 $ dividend per share per year. 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.: the last few years, the company's shares have been marking time, despite the fact that her business, objectively speaking, shows itself very well.
Can buy. Considering the merits of the company, especially its gigantic margin at 40% of revenue and not very large capitalization of $ 15.1 billion, they may well buy it. Moreover, there are not many 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. Which means, that in the event of a new round of conflicts between Israel and Palestine, the ESG lobby could ostracize CHKP's actions.
Nothing changed. As before, the company has disproportionately large sales from two unnamed third-party resellers: 22% on the first and 17% on the second. Changing relationships with one of them can have a very bad effect on the company's reporting..
Do without payments. The company is now in a state of strategic transition to a subscription business model.. Therefore, the management of CHKP 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 is the bottom line
Shares can be taken now for 113,49 $. And then there are three options for action.:
- hold shares until 137 $. I 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 the last time you took these shares with a view to the long term, now you can buy them. Since the last idea, the cybersecurity sector has become even more relevant, than before. Now news of major hacks arrives almost every day..
So you can safely take these shares for the next 15 years, To view, how this company will turn out to be Microsoft in the field of cybersecurity.