Fortinet Inc (FTNT, Financial) has recently experienced a notable decline in its stock price, with a daily loss of 9.69% and a three-month decline of 11.38%. Despite these figures, Fortinet's Earnings Per Share (EPS) stands at 1.53. This raises a critical question: is Fortinet significantly undervalued? This article delves into a detailed valuation analysis to explore this query.
Company Introduction
Fortinet is a leading platform-based cybersecurity vendor, primarily generating revenue through its subscription and support-based business. Based in California, the company serves over 700,000 customers worldwide. Currently, Fortinet's stock price is $58.88, while the GF Value estimates its fair value at $86.22, suggesting that the stock might be significantly undervalued. This discrepancy sets the stage for an in-depth exploration of Fortinet's intrinsic value, blending financial assessment with essential company details.
Understanding GF Value
The GF Value is a proprietary measure calculated based on historical trading multiples, a GuruFocus adjustment factor from past performance, and future business performance estimates. For Fortinet, the GF Value suggests a fair trading value significantly higher than its current market price. This indicates potential undervaluation, implying that the long-term return on Fortinet's stock could be much higher than its business growth rate.
Financial Strength and Stability
Investing in a company with solid financial strength reduces the risk of permanent loss. Fortinet's cash-to-debt ratio is 3.05, indicating better financial health than 50.25% of its peers in the Software industry. This is underscored by an overall financial strength rating of 7 out of 10.
Profitability and Growth Metrics
Fortinet not only shows strong financial health but also excellent profitability, with an operating margin of 23.82%, ranking it higher than 92.2% of its industry counterparts. Additionally, the company's 3-year average annual revenue growth rate is 29.6%, significantly outperforming 84.91% of competitors in the Software industry. These figures reflect a robust profit-generating ability and promising growth trajectory.
Comparative Analysis of ROIC and WACC
Evaluating a company's efficiency in generating cash flow relative to its capital investment is crucial. Fortinet's Return on Invested Capital (ROIC) is an impressive 20.87, which is substantially higher than its Weighted Average Cost of Capital (WACC) at 10.66. This indicates that Fortinet is creating substantial value for its shareholders.
Conclusion
In conclusion, despite recent price dips, Fortinet (FTNT, Financial) appears significantly undervalued when considering its GF Value, financial strength, profitability, and growth metrics. For investors seeking detailed financial insights and potential investment opportunities in quality companies, exploring Fortinet's 30-Year Financials and the GuruFocus High Quality Low Capex Screener could be highly beneficial.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
