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Why Fortinet Shares Got Walloped

By Brian D. Pacampara, CFA - Apr 11, 2013 at 11:07AM

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Is this meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of computer-network security specialist Fortinet (FTNT 1.21%) plummeted 18% today after its preliminary quarterly results disappointed Wall Street.

So what: One slow quarter isn't a huge deal, of course, but Fortinet's 35-plus P/E forces analysts to come down extra-hard on the stock. In fact, management blamed the warning on waning U.S. service provider demand, EMEA/Latin America weakness, and inventory shortages, giving investors plenty of concerns over slowing growth going forward.

Now what: Management now expects first-quarter EPS of $0.10 on revenue of $134 million-$136 million, clearly below the consensus of $0.12 and $140.4 million, respectively. "We remain optimistic about Fortinet's long-term opportunities as our products and innovation are strong and security demand drivers remain high," CEO Ken Xie reassured investors. Given the stock's still-lofty forward P/E of 25, however, I'd wait for even more of a pullback before buying into that bullishness.

Interested in more info Fortinet? Add it to your watchlist.

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