Security Is Hot; Fortinet Is Not -- but Why?

This crazy market of ours needs to start taking its meds again. That's the conclusion I reach when data-security specialist Fortinet (Nasdaq: FTNT  ) not only satisfies Wall Street targets but beats them with confidence -- only to see the stock falling through the floor.

Fortinet's $103 million of revenue crushed Wall Street estimates of less than $97 million, and non-GAAP earnings of $0.09 per diluted share edged out the $0.08 average forecast. The company also raised its full-year guidance to generally match analyst expectations. Against this reasonable performance, Fortinet plummeted, losing 19% the day after earnings.

Wall Street sees opportunity at the new prices, prompting Stifel Nicolaus to upgrade the stock to a buy with $29 price target. That's some 40% above today's price tag. To be frank, I don't see why this report struck such a sour chord with investors -- this stock is simply not a dramatically different investment today when compared with what we knew yesterday.

The report follows on Monday's similar outperformance by Fortinet rival Check Point Technologies (Nasdaq: CHKP  ) , which essentially uses clever software to do things that Fortinet likes to implement in custom-designed networking chips. Both Check Point and Fortinet claim to be stealing market share from larger rivals Cisco Systems (Nasdaq: CSCO  ) and Juniper Networks (Nasdaq: JNPR  ) as costumers clamor for specialized systems rather than afterthoughts from a do-it-all vendor.

Of course, only latecomers to the Fortinet party need panic over today's drop, as shares have still crushed the market with an 8% positive return over the past three months and nearly 180% in 12 months. It looks as though Fortinet investors got ahead of themselves in June and took this lack of world-beating numbers as an excuse to adjust share prices to reality again.

This five-star CAPS stock gets a unanimous thumbs-up from our best players, and this drop might just make both a tasty investment and a potential buyout candidate out of Fortinet. I'm putting my own all-star CAPS rating where my mouth is and rating Fortinet "outperform" right now. You can follow my lead, or else just add the stock to your Foolish watchlist in search of either better news or better prices.