Abstract factors:
The sharp inventory value drop after a stable earnings report is an entry or accumulation alternative;
Fortinet, regardless of a cautious steering on account of macro uncertainty, continues to dominate the vast majority of the firewall market shares;
Fortinet is probably the perfect worth play amongst giant cybersecurity shares with an affordable valuation, excessive development charges and powerful margins.
The Catalyst
Fortinet Inc. ($FTNT) is up over 250% in 5 years and over 800% in 10 years, reflecting excessive income development charges and a profitable enterprise mannequin within the cybersecurity sector. The inventory is at the moment buying and selling new 52-week lows after a pointy drop in early August submit Q2 earnings report. The report was really convincing however the steering got here in conservative on account of a excessive stage of macro uncertainty amidst tariffs and a slowing US economic system. The drop beneath $75 in August (from a $107 excessive in July) is unjustified, and though the inventory has already began the restoration, crossing the $80 price ticket a number of days in the past, it’s nonetheless properly beneath its 52-week highs of $114.
The corporate introduced a share repurchase program which is able to act as a serious catalyst for my part. The announcement of a $1 billion improve within the share repurchase program and its extension to February 2027 ought to act as a ground for the inventory, subsequently limiting draw back. The share repurchases additionally considerably enhance shareholder sentiment: an organization that buys its personal shares is an organization that believes it could actually develop additional.
Supply: Fortinet, Could 2025 Investor Presentation
Fortinet has been an aggressive share repurchaser within the current years, particularly in the course of the 2022-2023 bear market, whereas it hasn’t purchased any in the course of the 2024 bull 12 months, which total displays a wise capital allocation. The above chart was revealed in Could and I count on the share repurchases to speed up for the reason that August drop. A powerful rebound is unquestionably within the playing cards within the short-term.
Enterprise Overview
Within the long-term, Fortinet is properly poised to proceed outperforming its friends because of its enterprise moat. Fortinet’s firewalls are essentially the most superior on the earth, at a time the place cybersecurity threats multiply and all the pieces continues to turn out to be extra digital, linked and powered by AI. The enterprise controls over 50% of the worldwide market share of deployed community firewalls as per its final report.
Firewalls are community safety units that act like safety gates to community site visitors. It protects a community from the intrusion right into a trusted inside community by untrusted and probably harmful exterior networks. That is the core of Fortinet’s enterprise and income, however it has efficiently expanded to different segments corresponding to its SASE line for clouds (not technically a “firewall”, however it is sort of a firewall for clouds) and SD-WAN which is an AI-powered community optimiser steering community intelligently throughout a number of WAN hyperlinks.
Supply: Fortinet, August 2025 Earnings Presentation
The corporate simply crossed 1,400 issued patents worldwide, and over 500 issued and pending AI patents, pushed by R&D investments. The pipeline is big and income development catalysts ought to proceed to emerge, whereas the core enterprise stays properly forward of competitors.
Exhausting Figures Supportive of the Funding Thesis
This short-term and long-term funding alternative is extremely engaging, supported by the AI tailwinds and share repurchases talked about above, but additionally by its sturdy financials and valuation.
Regardless of a cautious steering on account of macro circumstances, the figures present a a lot rosier image. Certainly, income elevated by 14% YoY to succeed in €1.63 billion on the finish of Q2, with gross revenue margin regular at 81.3% and web earnings margin at 30.6%. Earnings per share have elevated by 54%, powered by rising earnings and a declining variety of shares (because of share repurchases).
Fortinet has had constructive FCF yearly with out exception since its IPO in 2009 and boasts a 32% FCF margin, a mirrored image of the enterprise mannequin’s solidity all through the years. The stability sheet is subsequently pristine, with $4.56 billion of money, equivalents and quick time period investments and solely $1.0 billion in debt. The funding grade ranking of BBB+ is justified.
Supply: eToro, TradingView
Final however not least, Fortinet could also be the perfect worth play amongst giant cybersecurity shares because of its August inventory value drop as you’ll be able to see within the chart above. The inventory is certainly now buying and selling at round $84 per share which supplies it a P/E of 32x. The PEG stands at solely 0.67x, reflecting the excessive development charges, which makes it for my part a superb GARP (Development At a Affordable Worth) alternative. The P/S of 9.8x can also be engaging, considerably decrease in comparison with friends. Zscaler (ZS) is buying and selling at 16.5x gross sales and Cloudflare (NET) has a P/S of 41.4x, and each have in the mean time unfavorable earnings (unprofitable) whereas Fortinet has been worthwhile and rising since 2009. The a lot bigger and extra established gamers corresponding to Palo Alto Networks (PANW) and Crowdstrike (CRWD) are worthwhile however they’re additionally considerably costlier at 14.4x and 25.4x gross sales, respectively.
Threat Issue To My Case
The important thing danger issue is the one which has been outlined by administration and prompted the inventory to erase 25% of its value. The uncertainty by way of capex investments amidst a turbulent setting may trigger Fortinet prospects to postpone their refreshes and cybersecurity updates. Curiously, regardless of the cautious steering, administration did elevate 2025 full 12 months billings steering midpoint by $100 million. The macro uncertainty prompted a number of financial institution analysts to announce downgrades for the inventory as capex spending could also be diminished or stagnate within the cybersecurity sector, and these downgrades, whereas quick lived, may proceed to behave as headwinds to the inventory value restoration within the quick time period.
Backside Line
Backside line: volatility will be a chance when it causes a inventory to unload unjustifiably, whereas the enterprise stays sturdy and continues to develop. The worth drop is a wonderful value entry for a long-term funding. Its superior merchandise, at a time the place the world is changing into more and more digital and cybersecurity threats proceed to growth, ought to proceed to assist the monetary development of the corporate. Share repurchases will seemingly restrict the draw back and the upside stays uncapped given a budget valuation versus friends.
Sources
https://investor.fortinet.com/news-releases/news-release-details/fortinet-reports-second-quarter-2025-financial-results
https://investor.fortinet.com/static-files/2d21430a-2c22-4b9d-b7f5-3f4bdaa420b6
https://www.etoro.com/markets/ftnt
This communication is for info and schooling functions solely and shouldn’t be taken as funding recommendation, a private suggestion, or a proposal of, or solicitation to purchase or promote, any monetary devices. This materials has been ready with out taking into consideration any specific recipient’s funding aims or monetary state of affairs and has not been ready in accordance with the authorized and regulatory necessities to advertise impartial analysis. Any references to previous or future efficiency of a monetary instrument, index or a packaged funding product aren’t, and shouldn’t be taken as, a dependable indicator of future outcomes. eToro makes no illustration and assumes no legal responsibility as to the accuracy or completeness of the content material of this publication.
