Wey How
Thematic Position Trader, Technology Stocks & Trend Following
Fortinet is a beautiful business because recurring security subscriptions make it highly stable and cash-generative. It is the clear leader in firewalls, protecting over 800,000 clients with fast, energy-efficient tools built on its own custom chips. x.comÂ
Fortinet is being welcomed into the portfolio as a new holding. x.comÂ
Fortinet's valuation leaves it vulnerable to a sharp drop: it trades above 53x next-twelve-month earnings despite EPS growth below 20%. Its post-earnings tumble illustrates that risk. x.comÂ
CrowdStrike may distinguish itself from an expensive cybersecurity group by showing more breakneck growth at earnings next month. Fortinet's slowing product revenue exposed how much relentless execution investors had priced into the group's extreme multiples, pulling CrowdStrike down in sympathy. CrowdStrike remains in a higher tier than Fortinet, which itself ranks above SentinelOne. x.com x.comÂ
Tenable looks cheap among cybersecurity software names, trading at a lower P/E than Palo Alto Networks and CrowdStrike, a lower forward P/E than Fortinet, and one of the group's lowest PEG ratios. Its chart shows a double breakout from a triangle and range highs, with low cycles and confirming on-balance volume. x.comÂ
Fortinet's recurring service growth is slowing while its firewall product refresh does the heavy lifting. Service revenue grew 13% versus 37% for products, and the full-year service guide was cut to $5.15-$5.17 billion. A cut to the recurring guide rarely gets bought back in a week; this looks like the start of a rerating lower. x.comÂ
Fortinet's results look excellent and should lift sentiment across security stocks. Its full-year revenue guidance came in about 3% ahead of expectations, with EPS guidance comfortably ahead too. x.comÂ
Cybersecurity looks set to boom over the next few years as AI capabilities like Mythos keep advancing. Investors have moved from treating all software as bad to favoring companies that help, work with or combat AI agents. By their charts over the past month, Fortinet, CrowdStrike and Palo Alto Networks look like the group's big three, and Fortinet held up regardless of CrowdStrike's and Palo Alto's results. x.comÂ
Fortinet looks expensive at 48x cash earnings and 40x next year's, versus about 30x for software companies. Fair value is $116-$148, roughly 30x next year's cash earnings give or take 12%, so the stock trades 19% above the top of fair and turns expensive above $196. This is a valuation screen based on reported earnings and revenue estimates, with no deeper fundamental work. x.comÂ
Cybersecurity is the one software subsector where AI strengthens the story, because every AI gain arms both attackers and defenders, so spending only ratchets up. The market is forecast to grow from $189 billion in 2024 to $402 billion by 2034. Palo Alto sells consolidation: revenue grew 31% last quarter, and once customers platformize, switching costs become a fortress. Fortinet and Palo Alto rank first and second among software names in an 811-stock screen driven by institutional buying. x.com … Show more