Check Point Software Technologies (CHKP) and Adobe Systems Incorporated (ADBE) are two of the top ten most profitable software stocks in the market today. Check Point was the second most profitable. Its operating margin and profit margin were around 43.1 and 50.5 percent throughout that time period, respectively. Adobe was the ninth most profitable as its operating margin and profit margin were over 26 percent and over 19 percent in the same time period, respectively. Check Point offers higher returns, but also brings more risk than an investment in Adobe.
Adobe underperformed against Check Point in June of 2012, but it was also 1.65 times less risky as an investment. Adobe took a small hit in the consumer market from Apple’s (AAPL) suppression of Flash in the consumer market, but it still has strong positioning in its niche market of software, application and program developers. Adobe consistently improves its suite of digital information management applications.
Check Point’s beta is around 0.67, while Adobe’s is around 1.5. Adobe’s PEG ratio is around 1.6, while Check Point’s PEG ratio is around 1.3. Adobe’s current price is around 16 times earnings, slightly lower than Check Point’s price of around 16.6 times earnings. Both firms have a trailing 12 months price of around 17 times earnings; these are about 70 percent lower than the industry average. Adobe’s price to book ratio is around 2.6, Check Point’s is around 3.15, while the industry average is around 2.66. Adobe’s price to cash flow ratio is around 13.3, Check Point’s is around 16.5 and the industry average is around 15.2. Adobe’s price to sales ratio is around 3.65, while Check Point’s price to sales ratio is around 7.9.
Both firms’ sales growth has increased by over nine percent from the previous year. Adobe’s sales growth has increased by around 7.6 percent from the previous quarter. In the same time period, Check Point’s sales growth increased by less than five percent. Adobe’s current and quick ratios are above three, while Check Point’s current and quick ratios have decreased to around 2.25. Adobe’s debt to equity ratio is around 0.25, while Check Point’s is around 0. Adobe’s return on equity, operating margin and net margin have each decreased by less than 90 basis points through the last three quarters. Check Point’s operating margin and net margin increased by less than 30 basis points since 4Q11, while its return on equity decreased by less than 10 basis points in the same time period.
Check Point’s trailing 12 months net margin is over 44 percent, Adobe’s is around 17 percent, and the industry average is around 10 percent. Check Point’s trailing 12 months return on equity is around 18 percent; Adobe’s is around 15.6 percent while the industry average is around 15.percent. Adobe’s growth rate for this year is slightly below the industry average, while Check Point’s growth is slightly above the average. Check Point’s projected growth rate for next year is slightly better than Adobe’s, but both are around 60 percent lower than the industry average. Check Point’s growth rates exceed Adobe’s for the past five years and the projected growth rate for the next five years as well.
Check Point offers many security products and suites to enterprise customers. Management solutions and unified security policies are a growing demand among business of all sizes in recent times. In a recent report, Check Point highlighted the release of new products that address similar needs for today’s growing enterprise market. Some of these overlapping products and services include Check Point Virtual Systems, ZoneAlarm Free Antivirus + Firewall, and Security Acceleration Module among others. Addressing time-lag and data transfer security issues across virtual systems seems to be the foremost focus in the software security sector at this point in time.
Adobe faces far less competition in its digital publishing and content sector. Adobe capitalizes on its leadership position in this market by constantly developing new product suites to keep pace with the evolving industry. As long as Adobe produces innovative products, it is the strongest competitor in the market due to its goodwill, familiarity and expertise in this sector. Adobe has the most expansive and appealing portfolio of products that program developers can use for Flash, HTML, web design or any other content creation task. Adobe thrives because its products keep pace with developers’ needs. In conjunction, continuous upgrades keep Adobe from becoming obsolete. AdobeAir addresses HTML5 needs, while new products like PhoneGap Build and Adobe Muse capitalize on the growing opportunities in the cloud subscriber market. Autodesk (ADSK) is Adobe’s main competition, but it caters to enterprise developers more than individual creative developers.
Another company, CyberSafe, sells encryption software for business and home users. CyberSafe software has many features that allow hidden folders to be encrypted, while also providing software for Skype chat encryption, and a virtual volume encryption tool. The software also allows businesses to control sensitive information in their cloud databases. This is a growing area for many businesses, and CyberSafe’s software is in a great position to capitalize on this growing trend.
Check Point’s recent success trumps Adobe’s, but it does business in a highly competitive market. How Check Point will fare in the future against firms like Cisco, Oracle (ORCL) and eventually HP (HPQ) is questionable. All of these firms are taking a growing interest in the information management and data security sectors. Adobe has a stronghold in the content creation market. As long as Adobe’s management, products and services keep pace with the evolving technology in the industry, this is the less risky investment looking into the long-term.