Today we have a very speculative idea: take shares in cybersecurity software maker Fortinet (NASDAQ: FTNT), in order to capitalize on the growth of these stocks after the recent fall.
Growth potential and validity: 20% behind 16 Months.
Why stocks can go up: the hacker threat is still relevant.
How do we act: take now 292,04 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
Fortinet makes cybersecurity software and sells a little more specialty devices, which, on its order, are produced by third-party companies.
According to the annual report, its revenue is divided into the following segments.
Goods — 35,32%. Purchase of the right to use Fortinet software and hardware. Segment gross margin — 62% from its proceeds.
Services — 64,68%. Sales here are divided into a subscription to solutions in the field of cybersecurity - 54,79% - and customer support - 45,21%. Segment gross margin — 87% from its proceeds.
Company revenue by regions:
- America - 42%. USA gives 31,34% of the entire revenue of the company.
- Europe, Middle East and Africa - 38%.
- Asian-Pacific area - 20%.
Arguments in favor of the company
Fell down. The company's shares fell under the weight of their exorbitant high prices from an all-time high in 351 $ in November of this year 292,04 $. I believe, that we can take shares with the expectation of a rebound.
May account who hackd. Since the first idea for this company, the stock has risen from 84 $ to an all-time high in 351 $, slightly higher than the original forecast. 10% per annum during 10 years. The question arises: does it make sense to wait for further growth of business and company quotes? And I believe, what "yes, It has.
The corona crisis has increased the load on the virtual capacities of the corporate sector – and with it, the risks of hacking have increased. We have already discussed this situation in the SentinelOne review.. At the moment, 600,000 vacancies in the field of cybersecurity remain unfilled in the United States alone - that is, a whole army of specialists is needed., which has nowhere to come from. Maybe, that in such conditions Fortinet will continue to increase its financial performance: since there are few specialists, then Fortinet will be able to maintain a high price for their services. And maybe, even increase it - in any case, there is no shortage of those wishing to become her clients.
Also, the company's quotes will be favorably influenced by news about major hacker attacks.. And such news will inevitably appear.
Half a glass Nolan. P / E is too big for the company - 87,77, yes and P / S is not small - 16,2, but it's not critical. The company is profitable, and her P / E is not yet in the hundreds - this already sets it apart from many companies in the field of cybersecurity. For example, Palo Alto Networks is still unprofitable. Fortinet compares favorably with its profitability against the general background, and thinking, this already distinguishes it well from the general background and will contribute to the growth of its quotes.
What can get in the way
Concentration. The company has most of its sales through IT resellers. The largest resellers of Fortinet solutions are Exclusive Networks IT companies with 30% revenue and Ingram Micro with 10% proceeds. Revisiting relationships with these customers could negatively impact Fortinet's reporting.
Oh, China. According to the annual report, 85% devices sold by the company are made in Taiwan. The problem is, what we don't know, what percentage of the company's sales is iron. That's why, if the PRC arranges a landing on the prodigal island, this could negatively impact Fortinet reporting. Or maybe not affect: We do not know, how important device sales are to her.
Still expensive. Even with the argument about "a huge achievement for the company - the very fact of its profitability" it looks expensive. So her quotes might shake.
Theory and practice. There are small risks of, that Fortinet software can be hacked by attackers, as it was with SolarWinds. And if that happens, then Fortinet stock will go to hell.
What's the bottom line?
You can take shares now by 292,04 $. I think, what are the next 16 something will happen in months, what will force quotes to rise again to a historical maximum 351 $. Probably, there will be another high-profile hacker story: hack into the Pentagon and send all American aircraft carriers to Saint Helena, or something smaller. Since the idea is volatile, it's better not to touch these stocks, if you're not ready for the storm.
