Why Fortinet Shares Got Crushed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of network security specialist Fortinet (Nasdaq: FTNT  ) plunged 19% today after its near-term outlook disappointed Wall Street.

So what: Fortinet's third-quarter results -- EPS of $0.14 on revenue of $136.3 million -- managed to meet estimates, but downbeat guidance for the current quarter and full year reinforces concerns over slowing growth going forward. Management cited continued weakness in Europe and falling demand in China for the gloomy outlook, forcing Wall Street to drastically cut its valuation estimates on the high P/E stock.

Now what: Management now sees full-year adjusted EPS of $0.51 on revenue of $524 million-$528 million, down from its prior view of $0.51-$0.53 and $525 million-$530 million, respectively. "We remain encouraged by the momentum we are seeing in the business and believe we are well positioned to maintain growth due to the combination of our technology advantage, strong cash flow generation capabilities, and over $690 million in cash on the balance sheet with no debt," CFO Ken Goldman reassured investors. Given the stock's still-lofty P/E of roughly 50, however, I'd wait for even more of a pullback before buying into that bull talk.

Interested in more info on Fortinet? Add it to your watchlist.

Fool contributor Brian Pacampara has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Related Tickers

10/25/2016 4:00 PM
FTNT $30.67 Down -0.57 -1.82%
Fortinet CAPS Rating: ****