What happened
Week to date, shares of Fortinet (FTNT 0.23%) were up 8.7% as of 11:38 a.m. on Friday, according to data provided by S&P Global Market Intelligence. The cybersecurity company continued to show why it's well positioned for growth. It delivered earnings ahead of the Street's estimate, with revenue growth accelerating for the third consecutive year.
However, slowing billings growth could be a headwind for higher share price gains in the near term.
So what
Market share gains and strong product revenue growth of 42.5% in the fourth quarter were healthy signs for the company's future. These numbers speak to the company's solid competitive position.
Management seemed very upbeat about the performance. The comments on the conference call by CEO Ken Xie suggest the company is on offense.
Xie cited the strong performance in bookings within the software-defined wide network (SD-WAN) and remote operational technology (OT) markets, which now account for a quarter of bookings. "And our goal is to keep growing and achieve No. 1 market share in network firewall secure SD-WAN and OT security market over the next couple of years," Xie said.
FTNT Revenue (Quarterly) data by YCharts.
Now what
While billings growth decelerated by a few percentage points last year, at 32% in Q4, it's still much higher than the 20% growth in Q4 2020. Management believes the company is still on pace to achieve $10 billion in billings by 2025 as networking and security services consolidate.
Investors should note that the company missed revenue estimates in the quarter, and the deceleration in billings could point to some softening momentum entering 2023. This could limit upside with the stock until there is better clarity about demand trends.
The shares are also selling toward the high end of their past trading range at a price-to-sales ratio of 10.6, which is something to consider before buying the stock.
