Unveiling Fortinet (FTNT)’s Value: Is It Really Priced Right? A Comprehensive Guide

The stock of Fortinet Inc (FTNT, Financial) has recently experienced significant fluctuations, with a daily loss of 16.4% and a 3-month loss of 36.57%. Despite these fluctuations, the company has reported an Earnings Per Share (EPS) of 1.33. This raises the question: is Fortinet (FTNT) significantly undervalued? In this article, we will delve into a comprehensive valuation analysis of Fortinet, unpacking its intrinsic value using the GF Value, a proprietary measure of stock’s fair value. We encourage you to read on for a detailed understanding of the company’s value.

Company Introduction

Fortinet Inc (FTNT, Financial) is a California-based cybersecurity vendor with over 500,000 customers worldwide. The company’s product offerings cover network security, cloud security, zero-trust access, and security operations. The majority of its revenue comes from its subscription and support-based business. Currently, the company’s stock price stands at $48.15, while the GF Value, an estimation of its fair value, is $81.79. This comparison suggests that Fortinet might be significantly undervalued.

Understanding the GF Value

The GF Value is a proprietary measure of a stock’s intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line 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 GuruFocus Value calculation, Fortinet (FTNT, Financial) is significantly undervalued. With a current price of $48.15 per share and a market cap of $37.80 billion, the stock is believed to be trading below its fair value. This suggests that the long-term return of Fortinet’s stock is likely to be much higher than its business growth.

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Financial Strength Analysis

Investing in companies with low financial strength could result in permanent capital loss. Hence, it’s crucial to review a company’s financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company’s financial strength. Fortinet has a cash-to-debt ratio of 3.34, which ranks better than 53.45% of 2741 companies in the Software industry. Based on this, GuruFocus ranks Fortinet’s financial strength as 7 out of 10, suggesting a fair balance sheet.

Profitability and Growth Prospects

Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Fortinet has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $5 billion and an Earnings Per Share (EPS) of $1.33. Its operating margin is 23.5%, which ranks better than 91.62% of 2768 companies in the Software industry. Overall, the profitability of Fortinet is ranked 9 out of 10, indicating strong profitability.

Growth is probably the most important factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Fortinet is 30.4%, which ranks better than 84.31% of 2396 companies in the Software industry. The 3-year average EBITDA growth rate is 37.7%, which ranks better than 83.29% of 1993 companies in the Software industry.

ROIC vs WACC

Another way to evaluate a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. 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 12.42.

Conclusion

In conclusion, the stock of Fortinet Inc (FTNT, Financial) is believed to be significantly undervalued. The company’s financial condition is fair and its profitability is strong. Its growth ranks better than 83.29% of 1993 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.