Is It Time To Reassess Check Point Software Technologies (CHKP) After Its Strong 12 Month Rally?

• Wondering whether Check Point Software Technologies at around US$131 is starting to look like value, or if the stock still carries too much downside risk.
• The share price closed at US$131.33, with returns down 0.3% over the last week, 5.7% over the last month, 27.5% year to date, and 41.5% over the past year, which naturally raises questions about what the current valuation is telling you.
• Recent coverage has focused on how the stock's weaker recent returns have shifted attention toward what investors are paying for its cash flows and balance sheet strength. That conversation sets up a closer look at whether current expectations still match the price you see on screen.
• Simply Wall St's value framework scores Check Point Software Technologies at 4 out of 6, based on how often it screens as undervalued across six checks. Next up are the classic approaches like P/E, cash flow, and assets, plus a look at a more complete way to think about valuation that ties everything together at the end of the article.

Find out why Check Point Software Technologies's -41.5% return over the last year is lagging behind its peers.

Approach 1: Check Point Software Technologies Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a stock could be worth by projecting the cash the company may generate in the future and discounting those cash flows back to today.

For Check Point Software Technologies, the 2 Stage Free Cash Flow to Equity model starts with last twelve month free cash flow of about $1.20b. Analysts provide explicit forecasts out to 2028, where free cash flow is projected at $1.34b. Simply Wall St then extrapolates further annual figures out to 2035 using those inputs.

Each of these yearly cash flows is discounted back to today and then combined with a terminal value to arrive at an estimated intrinsic value of $160.32 per share. Against the recent share price of about $131.33, this implies the stock trades at an 18.1% discount to that DCF estimate, which indicates the shares appear undervalued on this model alone.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Check Point Software Technologies is undervalued by 18.1%. Track this in your watchlist or portfolio, or discover 46 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Check Point Software Technologies.

Approach 2: Check Point Software Technologies Price vs Earnings (P/E)

For a profitable company, the P/E ratio is a straightforward way to see what you are paying for each dollar of current earnings. This makes it a practical cross check on the DCF work you have seen already.

What counts as a “normal” or “fair” P/E depends on how the market views the company’s growth prospects and risk profile. Higher expected growth or perceived resilience can justify a higher multiple, while more uncertainty or lower expected growth can point to a lower one.

Check Point Software Technologies currently trades on a P/E of 12.92x. That sits well below the Software industry average of 28.50x and also below the peer group average of 30.70x, so the stock is pricing in meaningfully lower expectations than many sector peers.

Simply Wall St’s Fair Ratio of 21.54x is a proprietary estimate of what a reasonable P/E might be for this stock, given factors such as its earnings profile, industry, margins, market cap and company specific risks. Because it blends these fundamentals into a single benchmark, it can be more tailored than a simple industry or peer comparison.

Comparing the Fair Ratio of 21.54x with the current P/E of 12.92x indicates that, on this metric, the stock appears undervalued.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Check Point Software Technologies Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Meet Narratives, a simple tool on Simply Wall St’s Community page that lets you write the story behind your numbers by linking your view of Check Point Software Technologies to explicit forecasts for revenue, earnings and margins. It then translates those forecasts into a Fair Value you can compare with the current price to help decide whether the stock looks attractive or stretched. A key benefit is that your Narrative automatically refreshes when new news or earnings arrive and can sit anywhere on the spectrum from a more cautious Fair Value around US$144 per share, similar to the latest consensus assumptions, to a more optimistic view closer to US$253 per share, more in line with the bullish cohort. This way, you can see in one place how your assumptions line up against what other investors are thinking.

Do you think there's more to the story for Check Point Software Technologies? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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