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Why Fortinet Stock Rose 29.2% in May

By Billy Duberstein – Jun 4, 2020 at 10:00AM

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The cybersecurity specialist got a boost as concerns over cyberattacks grew amid the work-from-home movement.

What happened

Shares of Fortinet (FTNT 0.09%) rose 29.2% in May, according to data from S&P Global Market Intelligence. The cybersecurity company is clearly benefiting from concerns that criminals might use the COVID-19 pandemic as an opportunity to penetrate large corporations as key employees began working from home instead of going to the office.

The positive effect on Fortinet's business was reflected in its first-quarter earnings report, which came out in May and handily beat expectations.

A cybersecurity icon emanates from someone's laptop screen as they type on it in their home.

Image source: Getty Images.

So what

In the first quarter, Fortinet grew revenue 22.1% to $576.9 million, beating analyst expectations by $22.7 million, while adjusted earnings per share of $0.60 beat expectations by $0.10. CEO Ken Xie said the strong results were "the result of strategic internal investments we made to deliver industry-leading products and services, expand into adjacent addressable markets, grow our global sales force, and invest in the channel." 

Of note, Xie pointed to Fortinet's custom ASIC (application-specific integrated chip), which management claims can process 10 times the throughput on virtual private networks (VPNs) that competitor solutions can. That's important, as teleworkers are likely logging in through secure VPNs into their company's IT infrastructure while working from home.

Now what

Fortinet guided to sequential increases in revenue and billings, along with operating-margin expansion for the next quarter, and that's not a surprise. The entire cybersecurity sector should get a lift in business results this year, especially if the work-from-home trend continues and companies need to shore up their infrastructure across disparate resources.

Of course, much of the positivity is already reflected in Fortinet stock, as shares have basically doubled from their March lows, and trade at 68 times trailing earnings and 52 times forward earnings. Thus, after its April and May run, it's hard to say whether the good times will continue, or if shares are due for a breather.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool recommends Fortinet. The Motley Fool has a disclosure policy.

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