Here's Why the Best Is Yet to Come for Check Point Software Technologies Ltd.

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Though Check Point (NASDAQ: CHKP) stock is up 23% year to date, shareholders took it on the chin after third-quarter earnings were released. The "problem" certainly wasn't last quarter, which was nothing short of stellar.

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The 12% dip in stock price following its latest earnings has only made Check Point an even better value. Of course, what really matters is how it's positioned for the long run, and that looks awfully rosy.

You're kidding, right?

Last quarter's $455 million revenue was good for a 6% increase over last year, and was on the high end of Check Point's and analyst expectations. If you're not that familiar with Check Point, 6% may not seem like much to get excited about. However, there's more to the story than wowing Wall Street with eye-popping sales growth at all costs.

It was Check Point's revenue guidance for this quarter that sent its shares reeling. Its updated guidance calls for earnings per share excluding one-time items of $1.45 to $1.55. Consensus estimates are for EPS of $1.49 a share, so no worries there.

The midpoint of Check Point's revenue expectations of $485 million to $525 million would equal a 4% improvement over 2016's fourth-quarter sales of $486.71 million. If this year ends up on the high side of Check Point's forecast, which it generally does, it would be a 7% to 8% increase.

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The problem is pundits were expecting $529.4 million in sales this quarter, which was all it took for short-term investors to kick-start the sell-off.

Now for the real story

For some perspective, Check Point competitor Palo Alto Networks (NYSE: PANW) stock is up 6% over the past week since sharing last quarter's results, which included a 27% jump in sales to a record $505.5 million. Thing is, despite growing its top line and enjoying a bump in share price, Palo Alto lost $0.70 a share, 11% worse than 2016's negative $0.63 a share. The culprit for Palo Alto's rising losses is spending.

The difference between Check Point and Palo Alto, and others in its peer group, is that CEO Gil Shwed is tightfisted when it comes to spending. The upside to Check Point's focus on efficiency was seen again last quarter. The $1.16 in EPS it reported in the third quarter was a 17% rise from a year ago.

Check Point's bottom line is even more impressive when you consider that single-digit revenue growth consistently leads to double-digit EPS seemingly every quarter. And that's another reason -- along with its near-term share price decline -- the best is yet to come for Check Point.

But wait, there's more

Beyond controlling spending, Shwed has Check Point focused on building a reliable base of recurring revenue from its cloud software subscriptions. Toward that end, Check Point's $120.33 million in subscriptions was a 22% increase over a year ago, which has become another ongoing theme.

When the $205.6 million generated from software updates and maintenance is added to the recurring revenue mix, 72% of Check Point's total sales is a foundation shareholders can rely on. Considering that its deferred revenue climbed 17% to $1.04 billion, it's safe to say investors can expect more recurring revenue growth in the future.

Another feather in Check Point's cap was expanding its relationship with Microsoft (NASDAQ: MSFT) last quarter. The data housed on Azure, the platform from which Microsoft's $20.4 billion annual cloud revenue run rate is derived, is secured by Check Point's vSEC solution.

Check Point also teamed with Korea-based LG (NYSE: LPL) to provide data protection for its smart home appliances. The Internet of Things (IoT) market represents an almost-limitless opportunity and Check Point continues to make progress where it counts.

At just 22 times earnings and 18 times forward expectations, Check Point is significantly undervalued compared to its peers. And with recurring revenue soaring every quarter, along with EPS, Check Point's future couldn't be brighter.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Tim Brugger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Check Point Software Technologies. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.