This Company Is a Buy With a Great Business Model
Jaiyant is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With online security becoming increasingly important, security stocks will continue to be attractive investment options. I had discussed the importance of the three major antivirus makers, Intel, AVG Technologies (NYSE: AVG) and Symantec (NASDAQ: SYMC) in my previous article, and this time around let's us take a look at Check Point (NASDAQ: CHKP), an Israeli IT and data security firm. With development centers in Israel, Belarus, Sweden and the U.S., it also has offices across the world, including Canada. There are a few reasons why Check Point stands out as an attractive investment option, and I will discuss those reasons in this article.
Check Point is headquartered in Tel Aviv, Israel and it employs almost 2,400 people worldwide. The company has focused on acquiring crucial IT security firms including the network security business run by Nokia. Currently, its products include network security, data security, mobile security and security management. Along with these, it also offers virtualization security, which ensures cloud services and e-commerce facilities are safe from threats. As recently as in 2011, Check Point acquired Dynasec, which makes risk management, enterprise governance and compliance products.
Check Point’s business model is impressive
What is remarkable about Check Point is its business model. It charges an annual fee for its products so that its software programs used by clients are kept updated and fully functional. While other companies like Symantec or AVG offer either subscription-based yearly packages or freemium models, Check Point’s annual fee model works much better. A recurring annual fee for its enterprise and regular clients helps Check Point keep a steady source of income. Its products are centralized, without clients having to purchase different products for different security threats. This ensures that clients remain loyal to the company.
Though both AVG and Symantec focus on IT and data security, their business models are not particularly impressive. People who use AVG’s free products may continue to use the free version without upgrading, even if the premium versions offer more protection. Symantec’s Norton antivirus products are free during a trial period and need to be bought for a period of one year. However, the client is always free to change his mind and buy a different antivirus the next year.
Symantec has experienced several issues with its products, the most famous being the New York Times example that I mentioned in my previous article. Its products detected one of the 45 malware programs installed by a Chinese hacking entity. Norton antivirus products are also processor-heavy and use up a lot of memory, making computers slow and inefficient, especially if one uses basic computers that do not have a lot of RAM.
On the other hand, AVG’s products, both free and premium are known to be lightweight and work well in the background. My only pique about AVG is that they have free versions, which makes it tempting for most consumers to stick on those free versions without upgrading to a premium version. Check Point’s annual fee model is thus a great way to increase brand loyalty.
With a market cap of almost $10 billion and a share price that borders $49, Check Point is an attractive stock to invest in. What I am really impressed with is its profitability. Its profit margin is 46%, with an operating margin of 55%. With a return on assets of 10.5% and a return on equity of almost 19%, it is one of the better managed IT security companies. Check Point is also known for its good returns and high margins, which makes it a good buy in the long-term.
The amount of data we store every year is growing by a mind-boggling 60% annually! To make sense of this trend and pick out a winner, The Motley Fool has compiled a new report called "The Only Stock You Need to Profit From the NEW Technology Revolution." The report highlights a company that has gained 300% since first recommended by Fool analysts but still has plenty of room left to run. To get instant access to the name of this company transforming the IT industry, click here -- it's free.
Jaiyant Cavale has no position in any stocks mentioned. The Motley Fool recommends Check Point Software Technologies. The Motley Fool owns shares of Check Point Software Technologies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!