Fortinet (NASDAQ:FTNT), a cybersecurity company, saw its stock plunge 10% following its earnings announcement. While the earnings themselves demonstrated considerable strength, the market reacted negatively to the company’s forward guidance, which fell short of projections. This disappointing outlook, combined with the stock’s high valuation, explains the recent decline. The question for investors now is whether the underlying strength of the earnings outweighs these concerns. Separately, see Google’s $1 Trillion Problem: Stock To Crash 40%?
The company achieved a revenue of $1.54 billion in Q1, representing a 14% year-over-year increase. This growth was driven by both product and service revenue streams. Product revenue reached $459 million, a 12% increase, while service revenue grew by 14% to $1.08 billion.
Notably, Fortinet achieved a record operating margin of 34.2%, a significant improvement of 570 basis points. The company also generated substantial free cash flow of $783 million, resulting in a healthy free cash flow margin of 51%. Total billings also demonstrated robust growth, reaching $1.6 billion, a 14% increase.
Despite Fortinet’s attractive solid performance, its valuation appears rich at approximately $100 per share. We believe that while the underlying business presents minimal cause for concern, the stock’s high valuation renders it particularly sensitive to negative market developments.
Our assessment is based on a comparative analysis of Fortinet’s current valuation against its recent operating performance, as well as its present and historical financial standing. Evaluating Fortinet across key dimensions of Growth, Profitability, Financial Stability, and Downturn Resilience reveals the company possesses a very strong operating performance and financial condition, as elaborated below.
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How Does Fortinet’s Valuation Look vs. The S&P 500?
Going by what you pay per dollar of sales or profit, FTNT stock looks expensive compared to the broader market.
- Fortinet has a price-to-sales (P/S) ratio of 12 vs. a figure of 2.8 for the S&P 500
- Additionally, the company’s price-to-free cash flow (P/FCF) ratio is 35.4 compared to 17.6 for S&P 500
- And, it has a price-to-earnings (P/E) ratio of 40 vs. the benchmark’s 24.5
How Have Fortinet’s Revenues Grown Over Recent Years?
Fortinet’s Revenues have grown considerably over recent years.
- Fortinet has seen its top line grow at an average rate of 21.5% over the last 3 years (vs. increase of 6.2% for S&P 500)
- Also, its quarterly revenues grew 14% to $1.54 Bil in the most recent quarter from $1.35 Bil a year ago (vs. 4.9% improvement for S&P 500)
How Profitable Is Fortinet?
Fortinet’s profit margins are much higher than most companies in the Trefis coverage universe.
Does Fortinet Look Financially Stable?
Fortinet’s balance sheet looks very strong.
- Fortinet’s Debt figure was $995 Mil at the end of the most recent quarter, while its market capitalization is $82 Bil (as of 5/7/2025). This implies a very strong Debt-to-Equity Ratio of 1.2% (vs. 21.5% for S&P 500). [Note: A lower Debt-to-Equity Ratio is desirable]
- Cash (including cash equivalents) makes up $4.8 Bil of the $10.4 Bil in Total Assets for Fortinet. This yields a very strong Cash-to-Assets Ratio of 46% (vs. 15.0% for S&P 500)
How Resilient Is FTNT Stock During A Downturn?
FTNT stock has been more resilient than the benchmark S&P 500 index during some of the recent downturns. While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.
Inflation Shock (2022)
- FTNT stock fell 36.1% from a high of $71.88 on 1 January 2022 to $45.93 on 3 November 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 15 June 2023
- Since then, the stock has increased to a high of $114.57 on 19 February 2025 and currently trades at around $105
Covid Pandemic (2020)
- FTNT stock fell 37.6% from a high of $24.27 on 6 February 2020 to $15.14 on 16 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 7 May 2020
Putting All The Pieces Together: What It Means For FTNT Stock
In summary, Fortinet’s performance across the parameters detailed above are as follows:
- Growth: Extremely Strong
- Profitability: Very Strong
- Financial Stability: Extremely Strong
- Downturn Resilience: Very Strong
- Overall: Very Strong
Fortinet has indeed demonstrated strong performance across the aforementioned parameters. However, this strength is reflected in its premium valuation of 12 times its trailing revenues. This current price-to-sales (PS) ratio is slightly elevated compared to the stock’s three-year average of 10x. Consequently, considering its high valuation, the stock currently appears expensive.
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