Undervalued Cybersecurity Stock Keeps Chugging

When most investors think of the strategy of buying undervalued stocks, they immediately make the leap to “value investing” – as popularized in recent years by the likes of Joel Greenblatt, Seth Klarman, and David Einhorn.

That style of value investing is completely the opposite of growth investing, which usually means excluding tech stocks from a value portfolio.

I don’t subscribe to that restrictive view.

For me, any stock – including tech stocks – can become undervalued, creating opportunities for savvy investors.

Today’s daily stock pick is in the cybersecurity niche, fast-growth market where the leading players are burning cash in the pursuit of growth.

Yet, this company is solidly profitable with consistent earnings growth over the years and solid cash flow generation – like the little engine that could.

But this has not been reflected in its stock price.
Its P/E ratio is trailing far behind its peers, and if it even comes a little bit closer toward the sector average, that would mean substantial appreciation for this stock.

Check Point Software Technologies Ltd. (CHKP)

Check Point Software is profitable, with consistent earnings growth that saw its earnings-per share rise to $6.37 for FY2022 from $5.48 in FY2019.

However, its revenue growth has trailed the sector average. This has likely contributed to its undervaluation, with investors gravitating to its higher-growth peers – even if they are all barely profitable or still loss-making.

One look at its forward P/E ratio reveals the extent of its undervaluation. Check Point is currently trading at a forward P/E ratio of just above 15x – while its peers’ forward P/E ratios are all in the 50–60x range.

That’s a huge difference, which is why I said that even a small closing of the gap could create substantial upside for investors who hold Check Point stock.

And with its recent earnings exceeding analyst expectations – plus massive growth for its cloud-based Infinity platform – Check Point should be on the radar of every investor wary of stratospheric valuations.

To your wealth,
Felix @ Ace of Investing