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1 Under-the-Radar Stock to Buy for 2022

By Jeff Santoro – Dec 22, 2021 at 6:07AM

Key Points

  • The most recent quarter showed Fortinet's sales growth trend continuing.
  • With expenses decreasing and a strong balance sheet, Fortinet is set for the future.
  • The company's valuation is reasonable when compared to others in the space.

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Fortinet may not be flashy, but it's worth a look for 2022.

For investors interested in the cybersecurity space, there is no shortage of options. Well-known companies Crowdstrike and Zscaler are promising investments for shareholders.

However, there's another company that flies a bit under the radar but has so far smoked the competition this year, with shares up 125% year to date compared to the S&P 500's 25%. Fortinet (FTNT -0.41%) may not be the cybersecurity company at the top of every investor's mind, but it should certainly be at the top of their 2022 shopping list.

Person holding a laptop in a room with computer hardware.

Image source: Getty Images

Strong, consistent growth

Fortinet sells cybersecurity solutions to customers of all sizes in a wide range of industries in over 100 countries. Its products are also offered through all the major cloud providers like Amazon (AMZN -0.59%) Web Services, Microsoft (MSFT 1.05%) Azure, and Alphabet's (GOOGL -0.15%) Google Cloud. Fortinet trades at a lower average volume than some of its competitors, evidence that it probably doesn't spend a lot of time on retail investors' minds.

A closer look at its performance, however, might compel you to think twice about scooping up its stock. In the most recently reported quarter, every important financial and business metric improved.


2020 Q3

2021 Q3



$651 million

$867 million


Deferred revenue

$2.4 billion

$3.1 billion



$750 million

$1.1 billion


Cash from operations

$221 million

$399 million


Free cash flow

$186 million

$330 million


Source: Company's SEC Filings.

What's even more impressive about these numbers is they've been increasing each quarter over the past year, showing the steady growth of the business. However, it's worth noting that the company would have to beat the high end of its Q4 guidance for revenue and billings to keep this trend going.

Fortinet's revenue comes from two sources, products and services. Of the two, service revenue has much higher gross margins because it's the subscription part of the business. In Q3, product revenue grew 51% and represented 39% of overall revenue. Service revenue grew 24% and was 61% of overall revenue.

Product revenue has been outpacing service revenue for the past few quarters and is the reason gross margins have slipped from 79% to 76% over the past year. This shouldn't be too big a concern for investors, as Fortinet's gross margins are still very healthy and revenues are increasing.

Good signs for the future

Not only is the business showing good revenue growth, but the company's also controlling expenses as it scales, with Q3 operating expenses decreasing as a percentage of revenue from 59% to 56% year over year. This is especially impressive considering the dip in gross margins, which shows that management has found ways to cut costs to improve the bottom line. 

Fortinet also repurchased $109 million in shares in Q3 and is authorized to repurchase another $2 billion over the next 14 months. This should help improve earnings per share and increase each shareholder's stake in the business.

Lastly, Fortinet has a strong balance sheet. It ended Q3 with $3.1 billion of cash and cash equivalents, with $1.1 billion in debt. The company trades at a forward price-to-sales (P/S) ratio of 16, so some of the expected future growth is already priced into the stock. However, Fortinet's P/S is lower than both Zscaler and Crowdsrike, companies that are not yet profitable and have had a lower return year to date.

While it's true that past results aren't indicative of future results, there are enough factors trending in the right direction to make Fortinet a stock worth buying for 2022.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeff Santoro owns Amazon, CrowdStrike Holdings, Inc., Fortinet, and Microsoft. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon, CrowdStrike Holdings, Inc., Microsoft, and Zscaler. The Motley Fool recommends Fortinet and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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