Fortinet: disrupting cybersecurity is paying off for the stock

Fortinet (FTNT) is a global cybersecurity solutions provider. The company offers its customers a full-cycle security services against the growing number of cyberattacks and helps to stay compliant with the fast-changing requirements of the global network. The Fortinet Security Fabric architecture provides solutions to the most critical security challenges, whether in application, cloud or mobile environments. More than 500,000 customers trust Fortinet to protect their businesses, which secures the company a world’s leading position in the security appliance market.

FTNT is a clear beneficiary of secular tailwinds in the cybersecurity industry, as cybercriminal activity is gaining momentum (Solar Winds, Colonial pipeline, JBS, Facebook etc.). According to various estimates, gloal losses from cybercrime could reach up to $ 4-10 trillion per year, while the entire security spend does not surpass a modest ~$160 bn per year.

The key idiosyncratic trigger benefiting FTNT's growth is the company's product edge over its competitors. Fortinet is considered the strongest player in the Firewall and SD-WAN (network security) market due to its full-SASE offering, which is based on its most powerful ASICs with an average throughput capacity up to 10x higher than competitors’, which enables the company to compete in the future cybersecurity market that is supposed to transit from cloud computing to edge. In addition, FTNT unlike its closest competitor PANW, provides its services at lower ASPs, which gives it an advantage in the SME market and reduces exposure to the IT "refresh cycle".

Fortinet has so far demonstrated excellent financial performance:

  • One of the industry leaders according to the “rule of 40%” (net margin + revenue growth). With relatively high growth rates, FTNT maintains a high EBITDA margin of >20%, positioning the company in a “quality growth” segment of the market;
  • FTNT delivers high organic growth of >15.6%, higher than closest competitors and the entire market (~ 12% -14% CAGR);
  • Strategically attractive revenue structure: although FTNT produces firewalls, the share of service revenue exceeds 60% (of which ~ 50% comes from subscriptions);
  • Strong BS with net cash position.

Fortinet stock is not cheap:

  • trades at ~43x 2025 P/E below the industry median of ~47x P/E 2025 but at a moderate premium to its closest peers PANW and CHKP;
  • 2025 FCFF yield exceeds 4.1%, which is more than double the industry average of 1.9%, but lower than yields of PANW and CHKP;
  • “Pure-cloud" FTNT peers trade at significantly higher P/E multiples (>100x), however FTNT’s 2025 PEG exceeds 2.5x, which is higher than the industry average 2025 PEG of ~2.1x.

On the back of the company's technological leadership which is reflected in its “beat and raise” quarterly reports, FTNT’s 5-year share price performance has been constantly outperforming S&P 500 and exceeds 800% with a Sharpe ratio of ~1.5. Despite high valuation, which can come under pressure in current macro-environment, FTNT stock remains an attractive long-term play.

Watch our in-depth company review on Seeking Alpha: Fortinet: Disrupting Cybersecurity Is Paying Off For The Stock (FTNT) | Seeking Alpha