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Stock Of The Day Breaks Out From Flat Base Amid High Expectations

Fortinet Inc

Fortinet Inc

FTNT


$8.98


2.85%


Stock Of The Day Breaks Out From Flat Base Amid High Expectations12%

IBD Stock Analysis

  • Shares break out of flat base Monday with buy point of 322.10
  • Stock formed a base while its rivals are extended after big runs
  • Composite Rating at 98 out of 99; Relative Strength Rating is 96
Stock Of The Day Breaks Out From Flat Base Amid High Expectations

Composite Rating

Stock Of The Day Breaks Out From Flat Base Amid High Expectations

Industry Group Ranking

Stock Of The Day Breaks Out From Flat Base Amid High Expectations

Emerging Pattern

Stock Of The Day Breaks Out From Flat Base Amid High Expectations

Flat Base

* Not real-time data. All data shown was captured at
1:16PM EDT on
10/18/2021.

Fortinet (FTNT) is the IBD Stock Of The Day as the cybersecurity stock broke out from a flat base on Monday. With third quarter earnings approaching for FTNT stock, investors may want to consider using a call option as a trading strategy.

Shares were up 2.9% in afternoon action to 324.27 after topping the 322.10 buy point. Fortinet stock has advanced 119% in 2021. Some other cybersecurity stocks, such as Palo Alto Networks (PANW) and Zscaler (ZS), are extended after big runs.

FTNT stock, though, has forged a flat base since reporting June-quarter earnings. Recognizing chart patterns is one key to IBD’s stock trading system.

Fortinet reported June-quarter billings, a sales growth metric, along with revenue and adjusted earnings that topped analyst expectations. Revenue rose 30% from a year earlier, to $801 million.

Billings gained 35% to $961 million. Adjusted earnings rose 43% to 95 cents a share. Analysts had projected revenue of $745 million, profit of 88 cents a share and billings of $872 million.

FTNT Stock: High Expectations After Strong Run

Despite the solid beat, some investors focused on guidance, with some analysts questioning whether growth may have peaked. The bearish view is that Fortinet earnings reports will face tough year-over-year comparisons in 2022.

At a virtual investor day in March, Sunnyvale, Calif.-based Fortinet said it expects at least $4 billion in revenue and $5 billion in billings by 2023.

The billings estimate came in above Wall Street’s target of $4.7 billion while the revenue outlook met expectations.

Fortinet’s core business is selling computer network “firewall” appliances. In that market, Fortinet competes versus Palo Alto Networks and others. Firewall appliances protect computer networks by blocking online intrusions and monitoring web-based apps.

Fortinet Stock: Push Into SD-WAN Key

Fortinet has pushed into software-defined, wide-area network technology. Known as SD-WAN, this networking gear links corporate headquarters with branch offices and remote workers.

Wells Fargo analyst Andrew Nowinski recently initiated coverage on FTNT stock with an overweight rating.

“Fortinet is gaining traction in the mid/large enterprise markets, without having to compete head to head with other large firewall vendors such as Palo Alto Networks,” he wrote. “The company is leveraging solutions such as SD-WAN, cloud security and IoT (Internet of Things) security as a way in to penetrate this space.”

Fortinet’s impressive growth is tied to semiconductor technology built into its network security appliances, analysts say. Fortinet has developed custom, application-specific integrated circuits. The devices combine SD-WAN with firewall capabilities, for example.

While chip shortages remain a global supply chain issue for many companies, Fortinet has not reported any issues to date.

Fortinet stock also holds a Relative Strength Rating of 96 out of a best-possible 99.

IBD Composite Rating Strong

In addition, FTNT stock holds a Composite Rating of 98 out of a best possible 99. The Composite Rating is a blend of the other five IBD stock ratings: the earnings per share or EPS Rating, Relative Price Strength Rating, Accumulation/Distribution Rating, Industry Group Relative Strength Rating and the SMR Rating.

The latter measures sales growth, profit margins and return on equity. The all-encompassing Composite Rating helps investors easily measure the quality of a stock’s fundamental and technical metrics.

In addition, Fortinet is slated to report September quarter earnings after the market close on Nov. 4. Also, investors could take positions ahead of the earnings report.

Another strategy around earnings would use call options allowing investors to buy cybersecurity stocks at a predetermined price without taking a lot of risk.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.

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