GrowthTurtle
Data Science PhD & IEEE Fellow, Ex-Two Sigma
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
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
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'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
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 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 stocks are priced for near-perfect execution. Forward P/Es stand at 201x for Cloudflare, 163x for CrowdStrike, 77x for Palo Alto Networks, 44x for Fortinet, 39x for Okta and 32x for Zscaler. x.comÂ
Palo Alto Networks at 21x forward sales is too expensive for 17% pro-forma growth, despite BTIG's view that it is worth more than the current price. x.comÂ
Fortinet is being welcomed into the portfolio as a new holding. x.comÂ
Palo Alto Networks is too expensive at 21x sales and 79x forward earnings for a company expected to grow only about 20% over the next few years. Cybersecurity matters more as AI advances, but even a good company has to be bought at the right price, which is why the stock fell even after a big earnings beat. x.comÂ
