2022 has ushered in significant volatility among technology stocks. Investors are staying away from them (and other sectors too) thanks to economic turmoil brought on by rising interest rate hikes, surging inflation, oil price hikes, continued U.S.-China tensions, and Russia's invasion of Ukraine. A clear sign of the volatility is the Nasdaq-100 Technology Sector losing 15.6% of its value so far this year.
Despite the bloodbath on the market, a few stocks have held their ground. Check Point Software Technologies (CHKP -1.56%), Sierra Wireless (SWIR), and Palo Alto Networks (PANW -1.23%) are three companies defying the broader stock market sell-off (see the chart below) thanks to the robust demand for their products.
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Let's see what's driving these companies' growth, and why they could turn out to be solid buys in the current environment.
1. Check Point Software Technologies
Check Point's stock has turned in a solid performance on the market this year so far, with gains of more than 17%. The cybersecurity specialist's impressive run can be attributed to two factors: its relatively cheap valuation and the acceleration in its subscription business, which points toward stronger growth in the future.
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Check Point is trading at 22 times trailing earnings and 18.5 times forward earnings. That's lower than the Nasdaq-100's price-to-earnings ratio of 30 and the forward earnings multiple of 23.5. This relatively cheap valuation has acted in Check Point's favor this year as investors have decided to dump richly valued tech stocks that could be stung by surging inflation.
This attractive valuation, combined with Check Point's forecast for stronger sales growth this year, has kept investors in high spirits.
Check Point expects to deliver up to 10% revenue growth in 2022 to $2.38 billion at the high end of its guidance range, following a 5% increase in 2021. A closer look at the company's key metrics indicates that it is well-positioned to achieve double-digit growth this year. The company's deferred revenue in the fourth quarter of 2021 increased 15% year over year to $1.7 billion, outpacing the actual revenue growth of 6% to $599 million during the quarter.
Deferred revenue is the money collected in advance by a company for services that will be delivered later. The line item is treated as a liability when the money is collected and is recognized as actual revenue once the service delivery happens. The faster pace of growth in this metric is a result of the growth in Check Point's subscription business, which is being driven by the demand for its different cybersecurity products that protect data centers, Internet of Things (IoT) devices, networking devices, and the cloud, among other items.
More specifically, Check Point's subscription business grew 13% in 2021 to $755 million following a 10% increase in 2020. As subscriptions accounted for 35% of the company's total revenue last year, Check Point has more room for growth on this front. Also, Check Point is the fourth-largest vendor of cybersecurity appliances, with a market share of just over 9%. The company is looking to gain more share in this market: It plans to expand its sales force by 25% this year, which should help Check Point make a bigger dent in the lucrative cybersecurity market in the long run.
2. Sierra Wireless
Sierra Wireless's stock has remained flat so far in 2022, but that is a solid showing considering the state of the broader stock market. However, Sierra stock has gained momentum of late following the company's strong fourth-quarter 2021 results, released on Feb. 22.
Sierra Wireless' fourth-quarter revenue shot up 24.4% year over year to $150 million as demand for its IoT chips remained strong. What's more, the chipmaker ensured that it had enough inventory on hand to meet the demand for its chips, which are used to power IoT modules, services, networking, and other applications.
Sierra also swung to an adjusted profit of $0.03 per share, compared to a loss of $0.19 per share in the year-ago period. For the current quarter, Sierra anticipates $142.5 million in revenue at the midpoint of its guidance range, which would be a 32% increase over the prior-year period. So the chipmaker's growth is about to switch into a higher gear this quarter, and it wouldn't be surprising to see the momentum continue thanks to the booming demand for IoT connectivity chips and related services.
Mordor Intelligence estimates that the global IoT chip market could exceed $27 billion in value by 2026, compared to $12 billion in 2020. Not surprisingly, Sierra Wireless customers have already started placing orders for chips that will be shipped in 2023. In all, Sierra could enjoy secular long-term growth thanks to the market it operates in, which explains why analysts expect the company's earnings to increase at an annual rate of 15% over the next five years.
Sierra's potential growth makes it an enticing IoT stock to buy right now, as it is trading at just 1.4 times sales. That price-to-sales multiple represents a nice discount to the S&P 500's multiple of 2.76, which is why investors looking to buy an explosive growth stock right now shouldn't overlook Sierra Wireless.
3. Palo Alto Networks
Palo Alto Networks' stock received a shot in the arm following the company's fiscal 2022 second-quarter results released on Feb. 22. The cybersecurity specialist delivered stronger-than-expected numbers and raised its full-year guidance, indicating that its high pace of growth is here to stay.
Palo Alto's fiscal Q2 revenue was up 30% over the prior-year period to $1.3 billion, and its guidance for the current year points toward a 28% jump in the top line to $5.45 billion.
It is worth noting that Palo Alto's remaining performance obligations jumped 36% year over year during the quarter to $6.3 billion, which is greater than its trailing-12-month revenue of $4.86 billion. This metric denotes the total value of customer contracts that are signed but have yet to be fulfilled.
The remaining performance obligations will be recorded as revenue on the income statement once they are fulfilled. So the stronger growth in this metric as compared to the actual revenue growth at Palo Alto points toward a solid future revenue pipeline that should help the company maintain its impressive growth momentum.
Another reason why Palo Alto should be able to sustain its high levels of growth is because of the company's share of the cybersecurity market. The company occupies the second position in the security appliance market, according to market research firm IDC. Palo Alto controlled 15.2% of the global security appliance market in the fourth quarter of 2021, just behind Cisco Systems' share of 15.3%.
With the global cybersecurity market expected to add nearly $9 billion in revenue over the next four years, Palo Alto Networks' share of this space should give its top line a nice boost. The lucrative end-market opportunity and the cybersecurity specialist's robust share tell us why analysts expect its earnings to increase at an annual pace of 25% for the next five years.
All of this tells us that Palo Alto Networks is an explosive growth stock to buy, as the market it operates in is likely to get a boost in the current geopolitical scenario.
