• Dean Ashley Bradshaw

Fortinet: Under The Microscope



The Cybersecurity industry has certainly benefited in the last two years with the global pandemic confirming that businesses cannot over look the importance IT security capital expenditure. Fortinet (NASDAQ:FTNT) is one of the leading IT and cloud security companies that turned their focus towards the cloud and away from the more traditional legacy hardware solutions.

FTNT has more than doubled this year as the company crushed earnings last month. The stock continues to rise (up further 15% since earning) and I believe that there is more to come from the company that boasts the second largest MarCap in the sector.

FTNT has been consistently growing revenue by 20% (sometimes more) and taking into consideration solid operating margins (again 20% PLUS), you would be a fool not to recognise that this outfit is on the rise. However, you might argue the case that most IT security related stocks have outperformed the broader market, and your argument would be a valid one.

Just take a look at the image below:




Data has shown us the decline in companies’ operational expenditure, however, organisations have realised the importance of running a secure platform thus continuing to spend on IT Security.

Companies are now focusing more on reoccurring revenue streams rather than clunky license deals AND lots of hardware situated on premises.

I am not eluding that FTNT does not generate revenue from hardware products BUT 60% of its revenue is generated from recurring software services. Reoccurring revenue is music to any savvy investor’s ears.

Fortinet’s continued revenue growth and profit margins contribute to a healthy forward cashflow valuation which opens up the opportunity for internal investments or share repurchases (The more skin in the game the management team have, the better for investment opportunity for me).

Mr. Ken Xie (Founder and CEO) owns over 8,755 units of Fortinet stock worth over $4,025,500,723 according to https://wallmine.com/people/10322/ken-xie - meaning he believes in the companies longer term plan.

The mission statement of the company might need a bit of work:

“Fortinet empowers its customers with intelligent, seamless protection across the expanding attack surface and the power to take on ever-increasing performance requirements of the borderless network—today and into the future.”

But it’s certainly inspiring.

Strong leadership + Strong Financials in a growing sector leads me to say that I think this company is certainly on the rise for longer term investing.

Thanks for reading

Dean

Disclosure: I have no stock, option or position in any of the companies mentioned. I wrote this article myself, and it expresses my own opinions for entertainment value, this is not financial advice.

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