Hillel Yaffe Hospital, the dating site Atref and the insurance company Shirbit have made headlines in recent months, after being targets for serious cyber attacks, and they are of course not the only ones. The number of cyber attacks is increasing in Israel and around the world, their sophistication is increasing and the understanding of the need for protection against such attacks is clearer than ever.
Precisely in such a period, the share of a company Check Point , One of the pioneers in the field of providing cyber security solutions, and probably the most profitable of them all, fails to keep up. While many stocks in the field have yielded investors double-digit, even triple-digit returns since the beginning of the year, Check Point recorded a negative return of about 13%, even though it shows an impressive and consistent net profit, unlike most companies above it in the value ranking.
Check Point, led by the founder Gil Shweid, Is currently traded at a market capitalization of $ 15.3 billion. Palo Alto Networks , A company founded by Check Point Nir Tzuk, which at the beginning of the Corona crisis (March 2020) was traded at a value similar to the value of Check Point, is currently traded at $ 50 billion. also Sentinel One , Which was issued last June at a value of $ 9 billion, is currently trading at a higher value than Check Point, $ 19.5 billion, after its share has soared 111% since the issue.
High risk of being ejected from the index
The return of Check Point is not only lower than that of other companies in the field, but also compared to the NASDAQ 100 index, which has risen 26.5% since the beginning of the year. Check Point is part of the prestigious index, which includes the largest companies (besides companies Finance) .But as of today, only one index company is traded at a value lower than the value of Check Point.
This means that Check Point has a high risk of being ejected from the index in the next annual update, next month, after many years in the index. Last year, six companies were ejected from the index, and replaced with six others that entered it. Aside from the loss of prestige in the event of an exit from the index, this also leads to the stock being sold by index-linked funds.
In recent months, Wall Street investors seem to prefer growth at almost any cost, and companies with high revenue growth rates have been well rewarded, even if it comes at the expense of net profit. This is explained, among other things, by the investors’ assessment that these companies are losing today in order to capture as much market share and customers as possible, thus ensuring future growth, which will ultimately also bring profit.
Check Point actually represents the complete opposite: it is growing at a single-digit rate, and traditionally it is considered a conservative company that does not embark on the adventures of huge mergers. It assures investors in it stability – it’s hard to remember when it issued a profit warning, for example – its modest growth is consistent, and it generates quarterly positive cash flow and net profit, both according to accepted accounting rules and on a non-GAAP basis. Such companies in the current period do not excite the capital market.
Precisely the fact that only less than two years ago Check Point and Palo Alto were traded at a similar market value can indicate the advantage of Check Point in the event of a sudden change in the market. So, the Palo Alto stock plummeted rapidly against the backdrop of the outbreak of the Corona crisis, and the Check Point stock was perceived as safer; Investors, in a time of uncertainty, preferred its large cash cushion and the fact that it had no debt.
Today the situation is different, and the market is less rewarding for “safe” companies. At the end of the third quarter, Check Point had $ 3.8 billion in cash, which is a quarter of its market value.
Seventeen of the major companies recorded losses
The Wall Street Journal recently published an article on cyber companies, showing that among the ten companies with the highest value, seven recorded losses in the last fiscal year. And there was a warning, too: Paul Ovil, CFO of cyber company Proofpoint, which was acquired this year by a private equity fund and turned into a private company (was also unprofitable), told the Wall Street Journal “it will not end well,” and estimated that some companies The weaker ones may suffer sharp declines in their market value.
But in the meantime, it seems, the celebration continues. Credit Suisse Investment Bank published an extensive review of the software and cyber companies this week, and some of the shares recommended by it received target prices that are 20% -40% higher than the stock prices on the stock exchange.
For example, a Palo Alto stock is recommended with an “excess return” recommendation and the target price is $ 625, about 21% above the market price. At the same time, Credit Suisse economists began surveying Check Point, but there is a negative recommendation, “missing return,” and the target price is $ 100, 13 percent lower than the current price.
Credit Suisse does believe that Check Point’s Infinity platform is unique, and is a differentiating factor, appreciating the company’s marketing efforts and encouraging product innovation – both organic and that made through acquisitions.
However, they say, “we are having a hard time finding signs of accelerating revenue growth and improving sales, which will lead to an improvement in net profit growth.” In their estimation, because Palo Alto and Fortint invest more than Check Point in R&D and sales and marketing, Check Point will eventually be required to invest much more in these areas – which will reduce analysts’ forecasts in operating profitability – or take the risk of losing market share for two The companies.
“Four analysts raise target price”
Check Point responded: “In the last month alone, following the publication of the financial statements in which we showed a 9% increase in billings, at least four important analysts raised the target price of Check Point shares, and an important body like Deutsche Bank even upgraded This positive trend joins other important indices that make us – even in the peak year of IPOs – one of the companies with the largest mix of resilience, growth and profitability on the Nasdaq in general and in the cyber world in particular. We will continue to implement our strategy, which, as mentioned, is already yielding results. “
Check Point was established in 1993 by Gil Schweid, Marius Nacht and Shlomo Kramer, and was issued by NASDAQ in 1996. At the end of 2020, the company employed 5,314 employees, of whom 2,259 in Israel, but since then the number of employees has increased due to additional recruitments.
Check Point is expected to end 2021 with revenue of $ 2.172-2.177 billion, and net income (Non-GAAP) of $ 6.81-7.01 per share. With the publication of the third quarter reports, a few weeks ago, Schweid said: “We are seeing a very large increase in cyber attacks in Israel – the attacks per organization have risen to almost 1,000 on average per week.”
Twenty-seven analysts cover Check Point, the vast majority in neutral recommendations, six in positive recommendations and three in negative recommendations. The average target price of the analysts per share is over $ 131, a premium of 14.3% over the current price.