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Is Fortinet Stock Overvalued after Generating Huge Returns?

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Apr. 16 2019, Updated 12:31 p.m. ET

Stock returns

Cybersecurity (HACK) stock Fortinet (FTNT) has generated returns of 68% in the last 12 months. The stock easily outperformed broader markets last year with gains of 55%. Since the start of 2019, the stock is up by 35%.

Fortinet stock has generated returns of 211% in the last three years and is up 329% in the last five years. Fortinet peers such as Proofpoint (PFPT), Symantec (SYMC), and FireEye (FEYE) have generated returns of 47%, 30% and -0.8% in 2019, respectively.

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These returns were driven by the company’s robust revenue and earnings growth. Its earnings rose at a compound annual growth rate of 38% in the last five years. The company’s sales had risen from $615 million in 2013 to $1.8 billion in 2018. Sales are estimated to reach $2.62 billion by fiscal 2021.

Fortinet stock is currently trading 0.4% below its 52-week high of $95.22 and 78% above its 52-week low of $53.40. With an RSI (relative strength index) score of 72, Fortinet stock is trading well into overbought territory.

Is Fortinet stock overvalued?

Fortinet continues to grow at a robust pace, and its valuation is bound to be higher than average. Fortinet has a high forward 2019 PE ratio of 67.8x. For 2020, this ratio is 55.4x. Analysts expect Fortinet sales to rise by 15.6% in fiscal 2019 and by 13.2% in 2020. Its EPS are expected to rise by 13% in 2019 and by 13.50% in 2021.

Its EPS could grow at a significant CAGR of 25.2% over the next five years. The stock will seem overvalued even if it loses 30%.

Analysts’ recommendations

Of the 30 analysts covering Fortinet, 21 have given it “buy” recommendations, seven have given it “holds,” and two have given it “sells.” The average 12-month target price for Fortinet is $87.26, which indicates a potential downside of 8.4% from its current level.

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