Fortinet (FTNT) – An opportunity to add a quality company.

A month ago, the stock prices of some cyber security shares such as Palo Alto (PANW), Crowdstrike (CRWD), Checkpoint (CHKP), Zscaler (ZS), Fortinet (FTNT) were pretty weak.

Since then, CHKP, Ftnt are still gone. ZS is … semi-ringing.

Out of everything is from the highest quality, including perhaps the highest quality Fortinet.

Here is a graph of Fortinet’s newest price trend:

What caused the big gap down?

The big gap can be due to many reasons, but especially that the market expected a lot from the results and guidance of FTNT, but unfortunately disappointed.

If you continue to beat the guidance, market prices in larger expectations, I think you will disappoint the market one day.

There were also concerns about where FTNT is with their firewall renewal cycle. During the profit call, management has updated that they may already be 40-50% with their customer hardware upgrade. The market expected the pipeline to be longer than expected, so there are worries there. They expected that the income or invoices would accelerate more, so it increases doubts in their implementation.

The market can also be of the opinion that FTNT Q3 guidelines were under expectations.

What Fortinet does

Fortinet is a cyber security company established in the US that is best known for its Strengthen firewallsthat are central to his business model. A firewall is essentially the first line of defense in company networks, the monitoring and filtering of traffic to prevent malignant attacks. What distinguishes Fortinet from many colleagues is that it designs its own security processors (ASICs), which gives its hardware a lead in speed and efficiency. Over the years, this positioning Fortinet has made one of the largest suppliers of network security worldwide, competing with Palo Alto Networks, Cisco and Check Point.

While firewalls remain his anchor product, Fortinet has extended its offer to what it calls Security fabric -A integrated series of security solutions that not only covers the defense of the network perimeter, but also cloud protection, end point protection and secure networks (such as SD-WAN). This integration is designed to give customers a single platform with consistent visibility and control, instead of a patchwork of point solutions. It is important that this strategy connects the customers of Fortinet with relationships in the longer term and recurring income from subscriptions and support services that are laminated on top of hardware sale.

The company also drove the structural wind of companies that shift to cloud and hybrid environments. These trends have created new attack surfaces and pushed IT teams to invest in uniform security platforms. Fortinet has been aggressively expanded to Secure Access Service Edge (Sase)” Zero Trust Network Access (ZTNA)And cloud protection offers to record this question. At the same time, the focus on cost-efficient hardware not only has large companies, but also the medium and service provider segments, which means it has penetrated a broad basis of customers in industries and regions.

This drawing can offer a chance for investors

If a share is reduced because the market appreciates a poorer cash flow over a different time frame than you, or it is a repairable problem, this can offer you a chance.

FTNT is currently acting 33 times Who looks high on an absolute basis. But 33 times PE is one of the cheapest it has been if you look at the historic PE Macrotrends. On average, the PE is about 40 times.

Ftnt’s PE reflects on three things:

1. Technology companies are usually traded at high prices.
2. The ability of FTNT to increase its income and cash flow over time.
3. The underlying quality of the company.

My question is whether one of these is influenced with new information that we know, or generally recent challenges we can see.

In general I don’t think so.

A technology company that sells hardware is influenced by Hardwarreverdroiging cycles, which may be part of the normal cycle cycle. The short -term profit can be made, but if you buy a company for the longer term in the longer term, this can offer an opportunity if MR market ftnt appreciates as a company that is not influenced by the normal business cycle.

Secondly, Fortinet is classified by Gartner as a leader in both:

1. 2025 Magic Quadrant for Sase (Secure Access Service Edge) platforms.
2. 2025 Magic Quadrant for Enterprise Wired and Wireless LAN infrastructure.

FTNT is broadly recognized for its security hardware and software offers via Zero Trust Network Access, Endpoint Protection, Sase, LAN/WLAN. FTNT also has pretty strong peer reviews and if we check what is said in Subreddits, you can notice that FTNT is appreciated for the convenience of the deployment to set up a multi -layered security strategy. If you need more detailed coordination, people generally prefer the firewalls of Palo Alto.

In contrast to most of his colleagues, FTNT is still profitable and is still growing. Most of his colleagues can grow a free cash flow, but they have just become profitable or started to generate a free cash flow not long ago. Some are even in the stage where they are not so focusing on cash flow positive.

Cyber ​​security has evolved (just like a lot of software-as-a-service) that every brand goes into so many verticals and tries to cover various security areas.

I do not claim to know enough, although I achieved and maintained cyber security products such as firewall, end point protection, Siem in my old job.

Operational management of them is very different from being the one who draws up the security strategy, so that you can simply take what I know as a caretaker in a technology company.

FTNT grew its operational greenhouse stream 26% PA The past 20 years. It grew its free cash flow at 26% PA over the past 20 years and 25% PA in the last 10 years. It grew his free cash flow 20% PA in the last 5 years.

You can work out a pin of about it 1.3 to 1.6 times.

I would say that such a pen ftnt places on a fairly real value (although the appreciation is the cheapest) by traditional statistics.

What many investors like about FTNT is that they are AA -Company Right on returns on shareholders. In probably their second slide in their presentation deck they will talk about their share purchasing program. Many companies have repurchase programs, but not many gifts in a slide that is so high.

From fireside chats with management, we can see that they are not Buy their shares back at any time When their share price is falling And stop buying back when their share price appreciates. The last time they bought back was probably on the DIP April 2025, which may be for the price of $ 84.

This means that they will probably buy back shares at this current level from $ 76 to $ 84.

In August 2025, the board approved an increase in US $ 1 billion with its existing stock buying program.

One of the reasons why companies do a lot back is because they spend many shares or options on their employees. If they do not return their shares, their shares will be more and more diluted.

But as you can see in the table in the graph, FTNT has the lowest stock-based compensation (SBC) among the cyber security players:

Not only that ftnt also has the lowest percentage of income spent on research and development for a cyber security company.

The non -publishing of R&D can be a sign of red flag in such an ultracompetitive and rapidly evolving industry, but FTNT has explained that they prefer to want to allow their solutions instead of growing through acquisitions. There are growth pains that a company has to do with growing due to acquisitions.

We can still be arranged as a leader to be a sign that R&D work still keeps them competitive.

FTNT says they have more than 550 AI-related patents, which can be more than most cyber security companies.

Cyber ​​security can be seen as a sub-area that indirectly benefits whether this AI-Golf actually materializes in the long term.

Ftnt is Still led by founder Ken Xie. Ken has 7% of the outstanding shares of FTNT, amount of $ 5.9 billion. His brother Michael owns another 7% of the company, so they have a lot of skin in the game.

I did not know that cyber security companies are good investments until Covid takes place. Apparently cyber security is something that managers do not save money on.

But they will optimize their limited IT expenditure.

I think this cake will expand and it is not as if FTNT is a weak here, so they will benefit if they can compete.

And it seems that FTNT’s management feels the same.

I will end with what they have shared about how they look at their guidance, what a reason can be for their fall in the stock price:

“The reason that we have given more than 12% to sales growth (13%) is that if the market grows by 12% (some of Gartner), we believe that we are winning market share.

We are convinced that for the next three to five years we will grow above 12% above 12% with market growth. If the market grows faster, we believe that we can also grow faster.

If the market is slow, we believe that we will continue to obtain the market share, because we feel that we are much better than any other competitor in each of these 3 segments “

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From 2004 to 2019, Kyith worked as an IT operational engineer. He is currently working as a senior solutions specialist in insurance. All opinions about investment canals belong to him and do not represent the views on providing.

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