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Hype Asset of the Day | September 20th, 2022


Fortinet, Inc. (NASDAQ: FTNT)

Fortinet is an American multinational corporation headquartered in Sunnyvale, California. The company develops and sells cybersecurity solutions, such as physical firewalls, antivirus software, intrusion prevention systems, and endpoint security components. Cybersecurity specialist Fortinet has outperformed the broader market by a big margin over the past decade. However, with its most recent successes, the company has seen an increase in mentions by a whopping 216% over the last day, prompting investors to wonder if it’s a good time to invest in the company now. Currently, shares of Fortinet trade at $50.57 each.


Positive Hype

There are numerous reasons that Fortinet has come to gain this much positive hype, here are some of them.

  • Fortinet's total revenue jumped 29% year over year to $1.03 billion, while adjusted net income increased to $0.24 per share from $0.19 per share in the year-ago period.


  • Bookings (which measures the value of new contracts signed with customers) jumped 42% from a year ago to $1.38 billion in Q2.


  • Fortinet's billings (services invoiced and awaiting payment) were up nearly 36% year over year to $1.3 billion.


  • Fortinet's deferred revenue rose 35% year over year to $2.9 billion.


  • The company also said deals larger than $1 million increased by more than 50%, a sign it's signing up larger customers and earning bigger budgets.


  • Adjusted operating margin came in at 24.8%, and adjusted earnings per share increased from $0.19 to $0.24, beating estimates at $0.22.


  • Fortinet's guidance also seemed solid as it forecast revenue of $1.105 billion to $1.135 billion in the current quarter, representing a 38% increase from the quarter a year ago and in line with the consensus at $1.12 billion.


  • Fortinet's end-market opportunity could more than triple in the next eight years, which would be a nice step up from the 2.5x growth seen in the past decade.


  • For all of 2022, the company is forecasting approximately $4.4 billion in revenue and $5.6 billion in billings. Fortinet's management expects revenue to increase at a compound annual growth rate of 22% through 2025, which implies $8 billion in revenue. Apart from this, it also expects to have billings of $10 billion by 2025.


  • Analysts are also upbeat about its prospects, forecasting 23% annual earnings growth for the next five years.


  • Lastly, the cybersecurity total addressable market is forecast to be greater than $199 billion by 2026 and as a leader, Fortinet stands to gain from this heavily.

Negative Hype

No investment is free from negatives, and Fortinet isn’t the exception. It is important to consider the downsides of an investment before making it, here is one of them.


  • Revenue growth slowed a bit, and investors were also disappointed with a dip in one particular profitability metric. Free cash flow actually fell 28% in Q2 compared to the year prior, coming in at $284 million. However, Fortinet has posted a profit and positive free cash flow every year since its 2009 IPO.


Conclusion

But Fortinet's elevated product sales and a backlog of services indicate service revenue will eventually rise too, and lift the bottom line higher with it. Despite the decrease in free cash flow, the company stands to do well in both the near future and further down the line. Fortinet is currently 30% off its highs, making it the perfect time to take a position in the company.



HypeIndex is an AI platform that detects Hype in stocks and cryptos before it moves the market, providing reliable early detection for profitable investment opportunities.

The algorithm for our proprietary HypeIndex score is based on sentiment analysis, data science and machine learning.




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