Today, we delve into the valuation of Fortinet Inc (FTNT, Financial), a leading cybersecurity vendor. The company's stock has experienced a daily loss of -2.14% and a 3-month loss of -24.4%. Despite these losses, it boasts an Earnings Per Share (EPS) (EPS) of 1.33. The critical question we aim to answer is: Is Fortinet (FTNT) modestly undervalued? This comprehensive analysis will provide valuable insights into the company's valuation, guiding informed investment decisions.
A Snapshot of Fortinet Inc (FTNT, Financial)
Fortinet is a California-based platform-oriented cybersecurity vendor. The company's product offerings span network security, cloud security, zero-trust access, and security operations. With over 500,000 customers worldwide, Fortinet's primary revenue comes from its subscription and support-based business. As of October 13, 2023, the company's stock price stands at $56.76, with a market cap of $44.60 billion and sales of $5 billion.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to the GuruFocus Value calculation, Fortinet (FTNT, Financial) appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth. At its current price of $56.76 per share and the market cap of $44.60 billion, Fortinet stock shows every sign of being modestly undervalued.
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Fortinet's Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss. Therefore, it's crucial to examine a company's financial strength before purchasing its stock. A great way to understand the financial strength of a company is by looking at its cash-to-debt ratio and interest coverage. Fortinet has a cash-to-debt ratio of 3.34, which is better than 53.28% of 2727 companies in the Software industry. The overall financial strength of Fortinet is 7 out of 10, indicating fair financial strength.
Profitability and Growth of Fortinet
Companies that have consistently been profitable over the long term offer less risk for investors. Higher profit margins usually indicate a better investment compared to a company with lower profit margins. Fortinet has been profitable for 10 out of the past 10 years. Over the past twelve months, the company had revenue of $5 billion and an Earnings Per Share (EPS) of $1.33. Its operating margin is 23.5%, which ranks better than 91.74% of 2759 companies in the Software industry. Overall, the profitability of Fortinet is ranked 9 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Fortinet is 30.4%, which ranks better than 84.52% of 2396 companies in the Software industry. The 3-year average EBITDA growth is 37.7%, which ranks better than 83.08% of 1986 companies in the Software industry.
Comparing ROIC and WACC
Another way to evaluate a company's profitability is to compare its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Fortinet's ROIC was 22.97, while its WACC came in at 12.4.
Conclusion
In conclusion, the stock of Fortinet (FTNT, Financial) shows every sign of being modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 83.08% of 1986 companies in the Software industry. To learn more about Fortinet stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
