Share prices of cybersecurity firm Fortinet (FTNT 1.29%) are up nearly 127% in 2021, easily trouncing impressive double-digit percentage returns from peers like Palo Alto Networks, CrowdStrike, and Zscaler. Even though Fortinet is considered a "legacy" cybersecurity company, pigeonholing it that way is unfair. This is a best-in-class hardware provider for data centers is apparently also steadily expanding its reach into the cloud.

With data center construction picking up pace once more, Fortinet has what it takes to remain a fantastic investment for years to come. Let's dig a little deeper on the reasons why.  

Someone using a computer. Overlaying this image is a graphic of a lock in a circle, surrounded by smaller circles with icons for email, the cloud, a computer, and WIFI.

Image source: Getty Images.

Product sales post another rally

Fortinet posted total revenue of $867 million in the third quarter of 2021, up 33% year over year. This was more than just a result of lapping poor performance a year ago (early in the pandemic). Fortinet notched a 19% year-over-year increase in sales during the third quarter of 2020, so the most recent quarter builds on a strong showing amid the early lockdowns to try and contain COVID-19.

Nevertheless, Fortinet did get some extra lift from its products segment, which represented nearly 40% of total sales in Q3. Product revenue rebounded in a big way and was up almost 51% year over year to $337.1 million. Secure processing units (SPUs) -- chips designed to secure data centers -- are one of Fortinet's specialties. With cloud computing steadily expanding at a rapid rate, these SPUs are in high demand at the moment. Plus, many organizations are looking to move data out of large centralized data centers into smaller localized ones closer to the end-user. This is opening up plenty of new possibilities for Fortinet as edge computing starts to become the norm for the cloud.

As data center use proliferates, it becomes a natural fit for Fortinet's hardware customers to also take advantage of the company's complementary security software services. These services were the driving force for Fortinet early in the pandemic when the world moved into lockdown, but this recurring revenue segment isn't slowing down this year. Service sales grew 24% year over year in Q3 2021, building on the 22% advance in Q3 2020.

The cloud is still a big opportunity

Although Fortinet is a couple of decades old now, it remains a fast-growing cybersecurity firm. It's also highly profitable. Free cash flow surged 77% higher to $330 million -- good for a lucrative free cash flow profit margin of 38%.  

The hefty bottom-line return comes in spite of Fortinet still finding plenty of new places to invest in research and development of new security services. Cybercrime is on the rise, and organizations around the globe are increasing their spend to keep data safe. So Fortinet continues to foster new services to pair with its best-in-class hardware. For example, remote work appears to be here to stay, so Fortinet recently partnered with Spain's Telefónica Tech to launch a new managed security service for out-of-office workforces in Europe and abroad.

Rather than spending heavily on acquisitions, Fortinet has historically favored partnerships and organic development of new services like this one. It's paid off handsomely. Though it generates over $1 billion in sales less than the largest cybersecurity firm (by revenue) Palo Alto Networks, Fortinet has generated nearly the same amount of free cash flow in the last 12-month stretch. 

FTNT Revenue (TTM) Chart

Data by YCharts.

Simply stated, Fortinet is an underrated leader in cybersecurity, and its days of fast growth are far from over. The outlook for Q4 2021 calls for revenue to be up 26% to 30% year over year to a range of $940 million to $970 million as data center construction heats up this year. The stock trades for 46 times trailing 12-month free cash flow as of this writing -- a premium to be sure -- but not an unreasonable one given the company's outlook for the immediate road ahead and huge growth of the security industry overall in the coming years.