Description

Thesis.  At about $120, Checkpoint is a security software company with a grossly overcapitalized balance sheet, massive free cash flow, dollar cost averaging buyback plan at 1.3b a year right now, and a business model among the best I've ever seen in all my years of investing, but the stock pretty much trades as if nobody cares, at least compared to others in the space.  

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So, I'll admit my ignorance here: one of the problems of being a small fry investor is I don't know a lot of things.  And I mean - a LOT of things.  While my small asset base along with limited intelligence and talent really isn't a huge problem with pedestrian business models like - say - asset managers and retailers, places where you can go and get a sensory experience and figure to yourself 'wow, those items at Five Below are really cool for being priced at $5 or less for the most part' - technology is an area where I simply don't have the experience, knowledge, or first hand experience to totally understand what is going on. 

And not having access to anyone else - for the most part - makes my ignorance even more extreme.   I'm not talking to companies in this space, wouldn't even know how to try, but many, many years ago after I was accepted on VIC (ala, there were no standards), I would post ideas just as much to share them as to get help in trying to understand what it is I don't get.   This if your opportunity to explain the story and help an otherwise ignorant investor, one who already owns this stock, has followed it since 2010, and always finds this story really curious.

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Some factoids:

*the cap here is 16.4b, but I am using the average share count for Q1 when there was a significant buyback - continued into this month - so the cap is likely lower. 

*the company has 562m in cash, 1.314b in marketable securities and short-term deposits along with 2.187b in non-current marketable securities, most of which are USD denominated short-term debt.  So, a total of 4.063b here, and there is no debt with Total liabilities are 2.3b with 1.079b of that deferred revenue.  a fort knox/cypto strong BS of epic proportions.

https://www.checkpoint.com/downloads/investor-relations-related/Check-Point-Software-1st-Quarter-2021-Financial-Results.pdf?v=1.1

*this company generates cash like a bank

As you can see, the company has generated 5.468b in CFFO in the past 5 years while spending 115m on PPE on 216m on acquisitions with 5.663b devoted to buybacks.   And the buybacks are amazingly consistent - when the company says they will buy, say, 325m in shares a quarter, they buy 325m shares in a quarter.  As far as acqusitions are concerned, as the above array shows, they don't feature this, and tend to buy companies for technology, not for growth.  

*the company is in a hot and vital industry.  The 20-F goes into detail as to what they do, but this firewall company is involved in security (pioneer in firewalls) and has grown revenue from 1.247b in 2011 to 2.065b last year.   

Ok, some negatives.

There aren't any.  Seriously.  Ok, maybe one - they don't do acquisitions.  They aren't growing by double digits.  They buy shares and make money.  Some people think they make too much money.  They don't market themselves enough to customers.  They don't spend enough on RD.   They've had some turnover in the sales force.  PANW - mentioned on the previous writeup on CHKP - is twice as large on a sales basis.  All the sexy companies in VL for this industry have stock price rockets, for the most part, to go with sharply expanding share counts (for the most part), negative cash flow, egegious use of RSUs, no hint of a buyback, valuations that don't make traditional sense (my ignorance showing).  CHKP just makes money - which is a negative, I guess.  I don't know.

Ok, maybe another.  I guess CHKP is going to be obsolete.  I don't know.  I'm not smart enough to understand this, but tech investors often seem to be exceptionally smart as a rule and they must know something.  Have read that retention rates with the company are in the 90% range, but I can't verify that.  Organic growth forecasts, which I can't really verify, seem to be at single digit growth rates.  But they must be going away.  I guess.  Sales don't grow fast, but they don't show signs of going away, but maybe this is the old blackberry or wet seal or Gadzooks teen apparel.  I don't know. 

Ok, maybe one more.  The cash just sits there. I actually like the cash, and i like the DCA nature of this buyback, but they've had a lot of money for years and years and it just sits there.  The CEO is also a co-founder, owns a large stake, and perhaps the company will do what he wants to do and that isn't going to change.  But it seems to go without saying that the company could do major acquisitions at really high levels - 4b on the BS, 1b generated by the business seems to be enough. 

I wish I knew more.   I don't.  If you want me to rate me badly, I'm 100% good with that, but if you really want to help then I'd really like to understand why this stock trades where it does.   Most folks with an EV of 12b generating over a billion with that going to the buyback plan don't trade like this, esp. in 2021 very happy market. 

Plus, these folks seem to present their story ALL the time (10x in the next quarter), but nobody is listening or I'm 100% ignorant.   Company is based in Isreal.

Catalyst

don't know - other than if they do double digit top line for a few quarters, buy somebody that juices the top line, or otherwise change their stripes and be seen as a growth company