In the midst of the coronavirus-induced market meltdown in March 2020, cybersecurity outfit Fortinet (FTNT 1.92%) got hammered like most stocks. Shares tumbled some 37%, getting swept up in the worry that business would be heavily disrupted by the crisis. But then a funny thing happened. 

As households around the world began to shelter in place and the work-from-home movement picked up steam, a new reality set in: The digital world, especially cloud computing-based services that can be accessed remotely, was going to be just fine. Perhaps even better than "fine." As a cybersecurity leader -- including in the cloud-based security front -- Fortinet shares rallied back to previous highs and then some. The stock is now up 29.8% year to date, compared to a negative 9.8% return for the S&P 500, after reporting accelerating sales growth during the first quarter.  

Management's outlook remains optimistic as the company's services are in high demand. Far from getting disrupted by the coronavirus, the pandemic has solidified Fortinet's importance in a new digital era where the cloud is a rule rather than an exception.

Someone pictured in the background pressing an illustrated lock icon.

Image source: Getty Images.

What the numbers say

Fortinet got its start selling firewalls, hardware located on a network that filters data and blocks questionable material or unauthorized access. In recent years, the rise of cloud computing has made hardware-based firewalls a legacy product. Most organizations continue to use offices and need the devices to secure their workforce located there, but a slow migration to cloud services requires a new software-defined firewall that also dwells in the cloud to protect an organization's operations.

The cloud gave rise to a slew of disruptive software-defined security firms. Many legacy outfits that were late to develop and update their product offerings have struggled to maintain growth, even as global spending on digital security has continued to increase. Not Fortinet. It began developing its own cloud security services in-house, focusing on large enterprises that needed a mix of legacy firewall devices, new cloud protection, and everything in between. After growing revenue and adjusted earnings by 20% and 34% respectively in 2019, results accelerated in the first quarter of 2020. New firewall hardware helped the company win renewals with customers, leading to an 18% increase in the product segment to $192 million; and the ongoing migration to the cloud led to a 24% in the service segment to $385 million.  


Q1 2020

Q1 2019


Total revenue

$577 million

$473 million


Adjusted operating margin



1.9 pp

Adjusted earnings per share




Pp = percentage point. Data source: Fortinet.  

The coronavirus isn't negatively impacting Fortinet. On the contrary, the sudden surge in work-from-home employees has forced many companies into the world of full-blow digital, and Fortinet has been there to help. A couple of fortuitous acquisitions (for undisclosed, but small, sums) were made late in 2019: Endpoint security (for smartphones, tablets, and any other device operating on a mobile or remote network) firm enSilo, and security orchestration automation and response outfit CyberSponse. Both are helping power Fortinet's recent success in the face of adversity and deepening the company's end-to-end suite of security services.

A high premium, but a long-term buy

After the Q1 report, Fortinet trades for 51 times trailing 12-month adjusted earnings per share and 27.7 times trailing 12-month free cash flow (basic profitability calculated by subtracting cash operating and capital expenditures from revenue). It's a premium price tag, but not an unreasonable one.

The Q2 2020 forecast is for revenue to increase another 14% at the midpoint of guidance, adjusted operating profit margin to increase again to 23% to 24%, and adjusted earnings per share to rise 12%. It represents a slowdown from Q1, but the spring is typically a slow season for Fortinet. Plus, the company tends to underpromise and overdeliver.

Either way, it's clear that Fortinet is a winner in the cybersecurity industry. It invested in new services and is just beginning to reap the rewards as the world deals with the COVID-19 pandemic.