Company ProfileÂ (excerpt from Reuters): Fortinet, Inc., incorporated on November 28, 2000, is a network security company. The Company provides cyber security solutions to a range of enterprises, service providers and government organizations across the world. It provides protection against cyber-attacks and the technology to take on security performance requirements of the network. It offers a range of security products and solutions, providing customers with an integrated network security architecture and a source of threat intelligence to identify and minimize security gaps. The Company’s network security solution consists of FortiGate physical, software and cloud solutions, which are deployable in the business environments of enterprises, service providers and small and medium-sized businesses, as well as government organizations. These platforms provide a range of integrated security and networking functions to help protect data, applications and users from network- and content-level security threats.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$13,931,162,505||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.87||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||54.37%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||160.12||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||16.11||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.87||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||0.00||Pass|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Fail|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||13.65%|
|MG Value based on 3% Growth||$7.40|
|MG Value based on 0% Growth||$4.34|
|Market Implied Growth Rate||75.81%|
|% of Intrinsic Value||447.19%|
Fortinet Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.27 in 2014 to an estimated $0.51 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 75.81% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Fortinet Inc revealed the company was trading above its Graham Number of $9.86. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 160.12, which was above the industry average of 56.55. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.17.
Fortinet Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||$1.17|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||9/1/2018|
|Total Current Assets||$2,078,100,000|
|Total Current Liabilities||$1,111,900,000|
|Shares Outstanding (Diluted Average)||175,700,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$1.23|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$0.51|
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
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The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.