Please ensure Javascript is enabled for purposes of website accessibility

Why Fortinet Stock Rose 28.6% During the First Half of the Year

By Billy Duberstein – Jul 9, 2020 at 7:53AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The cybersecurity stock benefited with the rest of its sector, and a new product innovation gave shares an extra jolt.

What happened

Shares of Fortinet (FTNT 0.44%) rose 28.6% during the first half of 2020, according to data from S&P Global Market Intelligence. The cybersecurity company was helped by the work-from-home environment, as enterprises sought to secure their communications from the threat of increased attacks seeking to take advantage of the COVID-19 pandemic.

Not only that, but Fortinet delivered a first quarter earnings report in May that handily beat expectations, after introducing a noteworthy new firewall product.

A lock icon in a blue animated motherbard with electric currents shooting out of all sides.

Image source: Getty Images.

So what

Fortinet's first-quarter earnings release was positive, with the company growing revenue 22.1%, and adjusted earnings per share rose $0.60, beating expectations. Just weeks earlier, Fortinet introduced its FortiGate 4200F firewall, using its own custom in-house processor tailor-made for virtual private networks. According to Fortinet, the seventh-generation network processor can deliver between five and 15 times the speed of other security firewalls that use more generic CPUs.

The new product is well suited for today's work-from-home environment. In addition, Fortinet has generally been able to successfully transition from hardware-based firewalls to today's more software-based cloud security solutions rather well -- an impressive feat amid a slew of new competitors. Fortinet's operational success, revealed in its positive earnings report, helped it have a big May, leading to its rebound from the March sell-off.

Now what

After Fortinet's solid run in the first half, some analysts are skeptical about further gains. The company has an extremely wide range of price targets, from $91 to $178.84, compared with today's price of $146.35. While Fortinet is a leading player in cybersecurity, a technology segment should get a continued boost from COVID-19, the stock is also trading at nearly 50 times next year's earnings estimates. For a $22 billion market cap company "only" growing in the 20% range, that's pretty expensive. As such, it may be best to monitor this well-positioned stock in cases it undergoes any large pullbacks after its big first-half run.

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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.