What: Shares of Fortinet (FTNT 3.37%) were up 11.6% as of 12:25 p.m. Thursday after the network security appliances specialist reported strong second-quarter results.
So what: Quarterly revenue jumped 30% year over year to $239.8 million, which translated to a 4.3% increase in adjusted net income to $19.4 million. On a per-share basis, Fortinet's adjusted net income remained flat year over year at $0.11. That might not sound particularly impressive, but analysts were expecting revenue of just $227.6 million, and an 18% year-over-year decline in adjusted net income to $0.09 per share.
In addition, Fortinet saw billings rise 40% year over year to $297.2 million, generated healthy cash flow from operations of $84.3 million, and achieved free cash flow of $73.5 million. All told, Fortinet also ended the quarter with a rock-solid balance sheet, with no debt and with cash, cash equivalents, and investments of $1.15 billion.
Now what: Fortinet founder and CEO Ken Xie credited Fortinet's outperformance to "the combination of our customer focus and strong competitive technology position, return on our sales and marketing investments, momentum with our partners, the robust security market, and our ability to land new customers as well as expand within our existing accounts."
In the end, though Fortinet shares might look expensive, trading around 430 times trailing-12-month earnings and 71 times next year's estimates, keep in mind it's likely those estimates will increase as analysts digest today's news. What's more, that lofty valuation isn't a huge concern for a company growing at such an impressive clip in this young, burgeoning market. Considering Fortinet's profitability should ultimately improve as it extends it market leadership position, I wouldn't be the least bit surprised if the stock has further upside for patient investors going forward.