Fortinet (NASDAQ: FTNT) Ready To Hit The Ground Running In January

There’s probably never been a better time to be a cybersecurity company, and Fortinet (NASDAQ: FTNT) can well attest to it after the year they’ve had. Their shares are up 110% in the past nine months and 15% in the past week alone. With this kind of momentum behind them as we head into the final ten days of 2020, it’s hard not to see them exceeding their all-time highs from July in the very near future.

Next month’s earnings report will paint a clearer picture, but for now investors have to look to October’s Q3 earnings report to get the most recent pulse check on the California headquartered company. Revenue was up an attractive 19% year on year while EPS was more than 30% higher than analysts were expecting. Like with many tech names this year, the analysts on Wall Street have struggled to accurately forecast where they’re going to land with their quarterly prints. Such has been the unprecedented surge in demand for cloud and SaaS based companies that they’re still not getting it even close to right with many names.

Market Leaders

The good news for investors in these kinds of stocks is that these underestimations tend to lend themselves to upside surprises and subsequent rallies in the share price. And as the move to all things digital continues, the need for secure and reliable networks continues to grow. Only last week SolarWinds (NYSE: SWI) were out with additional details on the Russia-linked hack into their Orion product which also affected Microsoft (NASDAQ: MSFT). Unsurprisingly, the fresh reminder that malevolent hackers are still out there sent a strong bid into Fortinet’s shares as a result.

Fortinet’s CEO Ken Xie summed up the opportunity at hand with October’s release when he said “the pandemic has accelerated digital transformation and cloud migration efforts creating multiple edges that require protection. Fortinet’s security-driven networking approach protects these edges, whether they are at the branch, cloud, data center, home, network or WAN edge.”

Earlier this quarter, Goldman Sachs were out with an upgrade to the stock’s rating, moving it from Neutral to Buy. Analyst Brian Essex was bullish on "a recovery in billings this quarter, with better product revenue growth relative to expectations." On top of that, Essex is also counting on the fact that "large enterprise headwinds may be abating sooner than anticipated", and that Fortinet is "well-positioned to outperform" the current valuation.

Getting Involved

For context on Essex’s valuation comments, Fortinet was trading at around 42x the 2020 EPS estimate compared to industry peers like Palo Alto Networks (NYSE: PANW), FireEye (NASDAQ: FEYE), and Proofpoint (NASDAQ: PFPT), who were all trading at 43x, 55x, and 65x respectively. Since then, Fortinet has lagged behind somewhat in performance compared to the other three, suggesting the potential for a catch-up play is just as fresh. They’re still among the market leaders in an industry that is going nowhere but up.

Earlier this month, the company came out with news of fresh integrations with Amazon Web Services (NASDAQ: AMZN), which further entrenches their position as a market leader in the cybersecurity space. Shares are currently coming off the back of a strong run up that started in early November. While they might be looking a little frothy with RSI above 70, that is also the kind of momentum and hype that should entice in fresh investors who are tailoring their portfolio for 2020.