Fortinet
(FTNT) is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.
Shares of this network security company have returned -3.4% over the past month versus the Zacks S&P 500 composite’s +0.1% change. The Zacks Security industry, to which Fortinet belongs, has lost 2.6% over this period. Now the key question is: Where could the stock be headed in the near term?
Although media reports or rumors about a significant change in a company’s business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Revisions to Earnings Estimates
Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company’s earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.
We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors’ interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
For the current quarter, Fortinet is expected to post earnings of $0.39 per share, indicating a change of +56% from the year-ago quarter. The Zacks Consensus Estimate has changed +1.2% over the last 30 days.
The consensus earnings estimate of $1.15 for the current fiscal year indicates a year-over-year change of +43.8%. This estimate has changed +0.9% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $1.38 indicates a change of +20.6% from what Fortinet is expected to report a year ago. Over the past month, the estimate has changed -0.2%.
With an impressive
externally audited track record
, our proprietary stock rating tool — the Zacks Rank — is a more conclusive indicator of a stock’s near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other
factors related to earnings estimates
, has resulted in a Zacks Rank #2 (Buy) for Fortinet.
The chart below shows the evolution of the company’s forward 12-month consensus EPS estimate:
12 Month EPS
Revenue Growth Forecast
Even though a company’s earnings growth is arguably the best indicator of its financial health, nothing much happens if it cannot raise its revenues. It’s almost impossible for a company to grow its earnings without growing its revenue for long periods. Therefore, knowing a company’s potential revenue growth is crucial.
In the case of Fortinet, the consensus sales estimate of $1.29 billion for the current quarter points to a year-over-year change of +34.2%. The $4.43 billion and $5.37 billion estimates for the current and next fiscal years indicate changes of +32.5% and +21.4%, respectively.
Last Reported Results and Surprise History
Fortinet reported revenues of $1.15 billion in the last reported quarter, representing a year-over-year change of +32.6%. EPS of $0.33 for the same period compares with $0.20 a year ago.
Compared to the Zacks Consensus Estimate of $1.12 billion, the reported revenues represent a surprise of +2.37%. The EPS surprise was +22.22%.
The company beat consensus EPS estimates in each of the trailing four quarters. The company topped consensus revenue estimates each time over this period.
Valuation
Without considering a stock’s valuation, no investment decision can be efficient. In predicting a stock’s future price performance, it’s crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company’s growth prospects.
Comparing the current value of a company’s valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.
Fortinet is graded C on this front, indicating that it is trading at par with its peers.
Click here
to see the values of some of the valuation metrics that have driven this grade.
Conclusion
The facts discussed here and much other information on Zacks.com might help determine whether or not it’s worthwhile paying attention to the market buzz about Fortinet. However, its Zacks Rank #2 does suggest that it may outperform the broader market in the near term.
Free Report Reveals How You Could Profit from the Growing Electric Vehicle Industry
Globally, electric car sales continue their remarkable growth even after breaking records in 2021. High gas prices have fueled his demand, but so has evolving EV comfort, features and technology. So, the fervor for EVs will be around long after gas prices normalize. Not only are manufacturers seeing record-high profits, but producers of EV-related technology are raking in the dough as well. Do you know how to cash in? If not, we have the perfect report for you – and it’s FREE! Today, don’t miss your chance to download Zacks’ top 5 stocks for the electric vehicle revolution at no cost and with no obligation.
>>Send me my free report on the top 5 EV stocks
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
