Up Over 90% So Far in 2021, Is Fortinet Stock Still a Buy After Q2 Earnings?

Fortinet (FTNT -0.97%) recently announced its second-quarter 2021 earnings results, handily besting expectations and reinforcing the more than 90% return the cybersecurity stock has delivered so far this year. Fortinet is a "legacy" cybersecurity firm, rooted in a time that predates the cloud era that has dawned in recent years.

Nevertheless, this security company is a best-in-class vendor for the hardware that enables the cloud and has organically developed a suite of modern software services that are steadily growing at a more than respectable pace. Though it's up big so far in 2021, don't pass on this top cybersecurity play.

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Q2 2021 by the numbers

In spite of lockdowns last year in an attempt to stall the spread of the pandemic, Fortinet actually had a pretty good 2020. Even during the initial economic freeze last spring, the company reported an 18% year-over-year increase in sales. But Fortinet was nevertheless affected, and it got a big boost in Q2 2021 as it lapped the slightly depressed results from the year prior. Product sales rocketed 41% higher to $298 million (37% of revenue) and services were up by 24% to $503 million (63% of revenue).

It all added up to an impressive quarter with total sales and free cash flow up significantly during the spring. Revenue of $801 million absolutely crushed management's guidance provided three months ago for as much as $747 million in sales.  

Data source: Fortinet. YOY = Year-over-year.  

The beat in financial results led to an upgrade for the full-year 2021 outlook. Management now expects revenue to be in the range of $3.21 billion to $3.25 billion (previously $3.08 billion to $3.13 billion), implying full-year growth of 25% at the midpoint.

A best-bet on cloud infrastructure

Fortinet harkens back to the day when firewalls -- devices that monitor and filter the data flowing into and out of a closed network -- were the gold standard in security. But with remote work and cloud computing now part of the "new normal," traditional firewalls don't always get the job done -- thus the rise of cloud-based security software firms that cast a wider net in protecting modern IT infrastructure. 

But Fortinet shouldn't be pigeonholed as a security firm of yesteryear. Its firewall hardware is among the best on the market for securing data centers, the computing units that enable cloud-based services and remote work in the first place. And with a new data center upgrade cycle getting underway in the wake of the pandemic, Fortinet's product sales growth could enjoy double-digit percentage expansion for years to come.  

As for its services segment, the company is constantly innovating new software to keep up with evolving customer needs. Fortinet now offers a well-rounded suite of security covering everything from traditional office-based protection to cloud software that keeps remote workers and connected devices safe. Unlike some of its peers, Fortinet has opted to develop most of these new services in-house rather than via acquisition of smaller peers. As a result, this is a consistently profitable firm (free cash flow profit margin has been over 30% for years) with a squeaky clean balance sheet (cash, equivalents, and long-term investments of $3.36 billion, offset by debt of just $988 million).

This has been one of the best cybersecurity stocks for years as it grows sales at a rate north of 20%, and that record is poised to continue this year. Fortinet stock currently trades for about 44 times trailing 12-month free cash flow after the Q2 update. This remains a top cybersecurity stock to buy for the long term.