Fortinet Inc (NASDAQ:FTNT) is a cybersecurity firm that’s been around for nearly 20 years. The company went public about a decade ago, in the teeth of the financial crisis, and has a checkered history in the markets.
Considering the sector Fortinet stock is in, that was certainly a better time to launch a cybersecurity company than it was to launch a mortgage company or a residential real estate investment trust (REIT). But FTNT stock still pretty much chugged along for about 5 years until it started to gain some traction.
FTNT had one powerful thing going for it at the time: Big firms had the power to borrow, even through the tough times, and companies were starting to realize how crucial it was to build out their cybersecurity capabilities. That meant a tailwind for quality cybersecurity firms.
Also, we were in the next iteration of the digital era — mobility. Security was expanding beyond just internal servers and simple firewall protocols. Data were now everywhere thanks to the cloud and Big Data, and the growing influence of the Internet of Things (IoT), which includes smart houses, cars, etc.
And of course, e-commerce.
These were places that enterprise level companies saw as massive opportunities to grow their businesses. And that meant 21st century digital security guards that not only worked reactively but proactively to threats.
That’s how FTNT stock has grown over 800% in the past 9 years …
But after a big run in the past few years, cybersecurity stocks aren’t growing at the pace they once did.
Although, FTNT released its first-quarter earnings in early May, and the numbers beat analysts’ expectations, the company gave conservative numbers for the rest of the year. These figures were only in line with analysts’ expectations, which was enough to sell Fortinet stock and elicit downgrades from some analysts. Today, Fortinet stock is giving back 2.6% amid a broader market selloff.
However, most analysts are still bullish on the stock. In fact, my Portfolio Grader still gives FTNT stock an “A” rating.
Here are three reasons why FTNT stock is still a buy in my view:
- Trade War: There are two things you need in any war — an offense and a defense. Whether it’s an economic war or an armed conflict, in today’s world, security is crucial.
China has very good hacking operations. And in this environment, testing vulnerabilities and hampering operations is all fair game. Plus, China has proxy states like North Korea that can cause issues without China’s fingerprints on it.
Then you add in players like Russia and its proxies who are happy to step in and add to the chaos.
To this end, a recent survey of chief information and security officers at financial institutions shows nearly 75% are expecting to increase spending on cybersecurity in the next year. Even if the trade war cools, espionage will not.
- Conflicting expectations: On a more micro level, this divergence on earnings and revenue among analysts is a great opportunity. Since earnings, the stock is off about 17% this month. But cash flow growth and earnings growth, historically and currently blow its peers and industry averages out of the water.
- Transition to platform from products: And FTNT is heading forward doing the same old thing, hoping it will keep working. The company is also weaving its products into platforms that will add value for the company and its customers.
What’s more, FTNT stock is already seeing its earnings estimates from analysts for the rest of the year rise, just in the past month. For these reasons, I recommend investors add Fortinet stock to their portfolios.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.