Fortinet Stock: Solid Fundamentals And A Good Investment (NASDAQ:FTNT)

Investment Thesis

Fortinet (NASDAQ:FTNT) is a cybersecurity company that provides a range of products and services designed to protect networks, devices, and data from cyber threats. The company’s stock has been performing well in recent years, with shares reaching all-time highs in late 2021.

However, the story was not the same this year. Although the company’s financials have been improving year over year, with its revenue increasing more than 32% in 2022, the stock has lost almost 28% of its value YTD. This has made many investors wonder if Fortinet is still a good investment.

The Formula For Fortinet’s Success In The Cybersecurity Sector

Fortinet is not a novice in the field of cybersecurity. It was made before the cloud when the only way to protect a physical location was with a piece of technology called a firewall.

Firewall design is still a source of income for Fortinet. For usage in these firewalls and other security appliances, it actually designs and produces its own chips, which it refers to as “security processors.” These security processors use chips that are among the best in their class and greatly outperform those used by competitors in the market in terms of processing speed and energy consumption.

But why would having security-focused chips give you a competitive advantage? With its hardware that combines actual data network hardware with security, Fortinet has been able to carve out a specific niche for itself within the security industry, allowing the company to focus on different network operators (data centers used for the cloud, on-premises networks for businesses, and mobile operators). As a result, a company designing a network will be able to include security directly into the mix rather than bolting on a security appliance after the fact, creating a more comprehensive approach to cybersecurity.

Since then, Fortinet has been creating a variety of security software services that are based on its hardware. A security “operating system” called FortiOS can be used for a variety of tasks and to defend a network from a wide range of attack vectors. The combined security processors and FortiOS from Fortinet consistently score among the top products in their respective categories, according to information technology analysts at Gartner and Forrester Research.

Fortinet In The Gartner List

For the third year in a row, Fortinet has received recognition as a Visionary in the Enterprise Wired and Wireless LAN Infrastructure 2022 Gartner Magic Quadrant^_TM.

According to Fortinet, this recognition can be attributed to the strength of its Wired and Wireless LAN portfolio, which includes FortiSwitch and FortiAP, as well as its ability to deliver a robust set of features that support customers’ evolving needs. Some examples of these features include real-time cyber risk visibility powered by artificial intelligence (AI), security by design without the need for additional licensing costs, and platform integration with built-in intelligence that addresses digital transactions. Fortinet received this recognition because it is able to deliver

Fortinet’s Wired and Wireless LAN portfolio enables customers to integrate their network infrastructure and security architecture in a seamless manner by making wired and wireless networks an extension of the company’s FortiGate Next-Generation Firewall. This gives customers a competitive advantage. Because of this, Fortinet is able to generate inventive new digital outputs in a simpler manner while avoiding the introduction of additional cyber dangers. The integration between the Fortinet Wired and Wireless LAN portfolio and FortiAIOps improves both the ability of FortiAIOps to deliver consistent AI-powered performance insights across the LAN, Wireless LAN, and WAN and the ability of FortiAIOps to give NOC teams real-time visibility of potential issues before network users are negatively affected. In addition, the integration improves the ability of FortiAIOps to give NOC teams real-time visibility of potential issues before network users are negatively affected.

What Makes Fortinet A Good Investment

All of Fortinet’s security technology is impressive, but how will it translate into returns that are higher than the market average? So far, everything seems to be going according to plan. Since 2009, Fortinet has experienced annual sales growth of well over twenty percent on average, and its adjusted operating profit margins have been in the mid-twenty percent area. Since Fortinet became a publicly traded company, the stock price has increased by close to 2,800% as a direct consequence.

The management team is certain that they will be able to maintain this outstanding financial performance over the coming years. Because the epidemic has sped up the transition to the cloud, Fortinet has seen an increase in the number of product sales it experiences (its SPU-powered firewalls and other security appliances). Through the first nine months of 2022, product sales increased by almost 32% compared to the previous year’s period.

The true brilliance of Fortinet’s business model, however, lies in the fact that once the company makes a product sale and the customer has the security hardware installed, the customer will eventually turn on the software service, which will result in a significant amount of ongoing recurring service revenue. To put it another way, a rush of infrastructure build-out over the past couple of years will result in double-digit growth in software revenue, which is highly profitable.

For the eight-year period spanning 2023 through 2031, analysts anticipate the company to generate average revenue growth of almost 18% while maintaining an adjusted net margin of over 20% on average.

Fortinet has been spending a significant portion of its profits on stock repurchases, which has the effect of increasing earnings per share and, over time, can contribute to an increase in the price of the company’s shares. Fortinet repurchased around $1.97 billion worth of its own shares during the first nine months of 2022, which is equivalent to approximately 5% of the company’s current market value.

Will Fortinet be able to outperform the market in 2023 thanks to the company’s robust growth and large profits? In the year 2022, it wasn’t very successful. It is very hard to forecast how the market will behave in the short term; but, if Fortinet is able to continue executing on its growth strategy, investors will eventually reap the advantages of this premier cybersecurity company’s efforts. Fortinet has been a stock that outperforms the market for a reason, and it still possesses all of the elements necessary to continue outperforming the market in the years to come.

Conclusion

Overall, Fortinet is a strong performer in the cybersecurity market with a solid financial track record, a differentiated product offering, and a focus on innovation. Based on these factors, Fortinet appears to be a good investment opportunity for those interested in the cybersecurity market, and therefore, I rate the stock as a Buy.