Shares of Check Point Software Technologies(NASDAQ: CHKP) fell as much as 16.8% on Tuesday, hamstrung by an uninspiring earnings report. The cybersecurity expert's shares recovered slightly to a 13% drop by 2:30 p.m. ET.
How Check Point met every target and still disappointed investors
Check Point's third-quarter revenue rose 7% year over year to $635 million while adjusted earnings jumped 9% to land at $2.25 per share. These results were right in line with analyst expectations across the board.
Management tightened its full-year guidance target around the midpoint of last quarter's ranges. Fourth-quarter targets also lined up with the current Street views.
Simply meeting expectations wasn't good enough to hold Check Point's stock aloft. The shares entered last night's earnings report on a full head of steam, having gained a market-beating 38% in the previous six months.
Check Point's most bullish investors expected the company to take market share from larger rival CrowdStrike, which suffered a costly service outage in July. But the first earnings report reflecting business results after CrowdStrike's massive outage didn't support that thesis. As a result, Check Point's stock stumbled and CrowdStrike's shares gained 3% on a relatively flat market day.
Does Check Point belong in Wall Street's bargain bin?
Data security investors are still looking for clues on how the CrowdStrike event may have reshaped the marketplace. Check Point CEO Gil Shwed said that his company's deal flow is strong in the Americas, but didn't mention any direct results from the outage in July.
So it's business as usual, despite a seemingly game-changing security industry disaster in the first month of the third quarter. Check Point's stock is still up 18% in six months after today's sharp correction. Despite sector-leading profit margins, Check Point's stock trades at the modest ratio of 25 times trailing earnings and 8 times sales.
That's a downright bargain next to Check Point's largest rivals, though it should be said that this company's growth looks slow in comparison to the same group. Check Point Software could be a solid buy today, if strong margins and reasonable share prices are more important than pure top-line growth in your analysis.
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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Check Point Software Technologies and CrowdStrike. The Motley Fool has a disclosure policy.
