What happened
Shares of Fortinet (FTNT 5.05%) were pulling back last month as the cybersecurity company delivered solid results in its second-quarter earnings report, but its guidance seemed to fall shy of analyst expectations.
In a market where investors are already turning away from growth stocks, that and delays in billings was enough to cause the stock to fall 18%, according to data from S&P Global Market Intelligence.
As you can see from the chart below, Fortinet fell sharply on Aug. 4 when its earnings report came out but mostly traded in line with the S&P 500 after that.
So what
Shares of Fortinet, which makes both cybersecurity software and hardware, fell 16.3% on Aug. 4, even though its second-quarter earnings results were in line with estimates.
Revenue in the quarter rose 29% to $1.03 billion, which matched the analyst consensus, as product revenue jumped 34% to $400.7 million and bookings were up 42% to $1.38 billion, a good sign for future growth.
The company also said deals larger than $1 million increased by more than 50%, a sign it's signing up larger customers and earning bigger budgets.
Fortinet's performance was also strong on the bottom line as the company is solidly profitable, unlike many of its cloud stock peers. Adjusted operating margin came in at 24.8%, and adjusted earnings per share increased from $0.19 to $0.24, beating estimates at $0.22.
CEO Ken Xie said, "Fortinet's market share gains are being driven by the convergence of networking and security and an accelerating focus on vendor consolidation with our Core Platform and Platform Extension solutions designed to secure our customers' entire infrastructure from the data center to the cloud."
Fortinet's guidance also seemed solid as it forecast revenue of $1.105 billion to $1.135 billion in the current quarter, representing a 38% increase from the quarter a year ago and in line with the consensus at $1.12 billion. Nonetheless, comments on the earnings call about supply chain delays and issues around linearity, or the timing of deals closing, seemed to impact the stock. Those issues also weighed on free cash flow in the second quarter, which was still strong at $283.5 million but down from $394.7 million in the second quarter a year ago.
Two analysts covering the stock essentially reiterated their price targets on Fortinet, and shares tracked with the broad market over the rest of August.
NASDAQ: FTNT
Key Data Points
Now what
September has gotten off to a better start for Fortinet, as the stock is up 5% through Sept. 8, and two analysts have weighed in with bullish ratings.
Investors may want to take advantage of the August sell-off since the company is performing well in a difficult macro environment and its profits should put a floor on the share price.
