Fortinet, Inc.

Date: May 05, 2024.

Company’s Overview

Fortinet (FTNT) stands as a global cybersecurity giant, protecting businesses of all sizes from cyber threats. Their firewalls, endpoint security solutions, and intrusion detection systems safeguard data and devices across networks, cloud environments, and everywhere in between. From corner shops to multinational corporations, Fortinet secures the digital world.

Competition

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

Related Risks

Cybercriminals constantly cook up new hacking methods, requiring Fortinet to innovate faster than ever. The cybersecurity market is consolidating, with mergers and acquisitions increasing competition. A lack of skilled cybersecurity professionals makes finding the right talent difficult. Data breaches can damage their reputation, and a changing regulatory landscape adds complexity. To stay on top, Fortinet prioritizes continuous security innovation, attracts the best minds in the field, and navigates the ever-shifting world of data regulations.

Financial Analysis

Company’s Revenues

Revenues from 2021 to 2023:

• Fortinet annual revenue for 2023 was $5.305B, a 20.09% increase from 2022.
• Fortinet annual revenue for 2022 was $4.417B, a 32.17% increase from 2021.
• Fortinet annual revenue for 2021 was $3.342B, a 28.82% increase from 2020.

The yearly revenue from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s Net Income

Net Income from 2021 to 2023:

• Fortinet annual net income for 2023 was $1.148B, a 33.89% increase from 2022.
• Fortinet annual net income for 2022 was $0.857B, a 41.28% increase from 2021.
• Fortinet annual net income for 2021 was $0.607B, a 24.22% increase from 2020.

The yearly net income from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s EPS

EPS from 2021 to 2023:

• Fortinet 2023 annual EPS was $1.46, a 37.74% increase from 2022.
• Fortinet 2022 annual EPS was $1.06, a 45.21% increase from 2021.
• Fortinet 2021 annual EPS was $0.73, a 25.86% increase from 2020.

Company’s Free Cash Flow

Free Cash Flow from 2021 to 2023:

• Fortinet annual free cash flow for 2023 was $1.731B, a 19.46% increase from 2022.
• Fortinet annual free cash flow for 2022 was $1.449B, a 20.4% increase from 2021.
• Fortinet annual free cash flow for 2021 was $1.204B, a 25.68% increase from 2020.

The yearly free cash flow from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Shares Outstanding

In April 2023 and July 2023, FTNT’s board of directors approved $1.0 billion and $500.0 million increases in the authorised stock repurchase amount under the Repurchase Program, bringing the aggregate amount authorised to be repurchased to $6.75B.

The Company overall has decreased its shares outstanding by almost 12% from 2017.

Asset/Liabilities & Current Ratio

The asset-to-liability ratio of 0.94 indicates their assets are less than their liabilities. This offers minimal buffer for unexpected costs or strategic investments in new security solutions, crucial for staying ahead of the ever-evolving cyber threats they combat.

On a slightly more positive note, the current ratio of 1.19 suggests they have some wiggle room to cover their immediate financial needs. This ratio measures a company’s ability to meet short-term obligations (debts due within a year) using short-term assets (cash, receivables). However, a ratio this close to 1 still indicates limited flexibility compared to companies with a more substantial current asset buffer.

Valuation

Based on the analysis performed, FTNT’s price is slightly overvalued. As key metrics, we considered 10% Required Rate of Return (RRR) and 20% margin of safety. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The company has received a range of ratings from buy to sell. Specifically, there were 10 buy, 4 overweight, 25 hold, 0 underweight and 1 sell ratings. The consensus rating leans toward hold.

Fortinet presents a fascinating paradox for investors. Their financial performance is undeniably stellar. Exceptional growth across revenues (10-year CAGR of 921.29%), EPS (10-year CAGR of 47.58%), and free cash flow (10-year CAGR of 26.55%) over the past decade, superior profitability reflected in sky-high gross margins (76.68%) and net margins (21.64%) that crush the industry averages (41.84% and 11.00%, respectively), and a strong return on invested capital (ROIC of 21.27%) all paint a very attractive picture. They’ve even been reducing outstanding shares by 12% since 2017, further amplifying shareholder value.

However, two aspects temper this enthusiasm. The stock price appears slightly overvalued but has a P/E ratio of 44.03 compared to the industry median of 26.42. Additionally, their financial strength raises some eyebrows. The low asset-to-liability ratio of 0.94 and weak liquidity ratio (current ratio of 1.19) suggest limited resources for immediate needs. While the negative net debt position ($-326 million) is a positive, Fortinet will need to demonstrate continued exceptional performance to justify its current premium valuation.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.