Investors looking for stocks with high market liquidity and zero debt on the balance sheet should consider Check Point Software Technologies Ltd. (NASDAQ:CHKP). With a market valuation of US$17b, CHKP is a safe haven in times of market uncertainty due to its strong balance sheet. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Using the most recent data for CHKP, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
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Can CHKP service its debt comfortably?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. For Check Point Software Technologies, investors should not worry about its debt levels because the company has none! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with CHKP, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does CHKP’s liquid assets cover its short-term commitments?
Since Check Point Software Technologies doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at CHKP’s US$1.2b in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$2.1b, leading to a 1.82x current account ratio. Generally, for Software companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Next Steps:
CHKP has zero debt in addition to ample cash to cover its near-term commitments. Its strong balance sheet reduces risk for the company and its investors. Keep in mind I haven’t considered other factors such as how CHKP has performed in the past. You should continue to research Check Point Software Technologies to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CHKP’s future growth? Take a look at our free research report of analyst consensus for CHKP’s outlook.
- Valuation: What is CHKP worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CHKP is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.