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A Look at Fortinet’s Stock Returns and Valuation

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Stock returns

Fortinet is one of the major players in the cybersecurity space. Fortinet (FTNT) has gained just over 2% since the start of April 2019. The stock though is up 22% this year. The gains were somewhat wiped out on May 3 when the stock fell 6% after investment bank Citi (C) downgraded Fortinet over concerns about its strategy and product slowdown.

Driven by robust sales growth in the last few years, Fortinet has generated impressive returns for shareholders. The stock has risen at a CAGR (compound annual growth rate) of 38% in the last three years and 33% in the last five years. Fortinet’s EPS rose at a CAGR of 38% in the last five years.

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Is Fortinet stock trading at an attractive valuation?

Fortinet is trading at a forward PE multiple of 40.3x for 2019 and at 36.0x for 2020. In comparison, the company’s earnings are estimated to rise by 13% in 2019 and then gain 13.5% in 2020, indicating that the stock might be overvalued at current prices.

Its earnings are estimated to grow at a CAGR of 17% in the next five years while sales might rise by 13.6% annually over the next three years. Out of 30 analysts covering Fortinet, 21 recommend a “buy,” and seven recommend a “hold.” There are two “sell” recommendations. The average 12-month price target for Fortinet is $89.15, indicating the stock is trading at a discount of just 4% to average estimates.

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