What impacted Fortinet stock?
Cybersecurity company Fortinet (FTNT) fell 5.8% on May 23 to close trading at $77.49. It seems that the broader tech sell-off on Thursday impacted Fortinet stock and dragged it lower. The cybersecurity ETF (HACK) fell 2.3% yesterday, while the Technology ETF (XLK) fell close to 2%. The global markets are concerned about the escalation of the trade war between the United States and China.
Fortinet stock is now down by 17% in May 2019. The stock lost 6% on May 3 after investment bank Citi (C) downgraded the stock from “neutral” to “sell.” It also lowered Fortinet’s 12-month stock target price from $84 to $78.
According to Citi, weak product trends and Fortinet’s strategy could impact sales going forward. We also identified Fortinet stock as “overvalued” earlier this month after Citi’s downgrade. Despite the recent pullback, Fortinet stock is still up by 10.0% since the start of 2019.
Fortinet stock is trading at a forward PE multiple of 32.4x. Comparatively, its EPS are expected to rise by just 16.3% in 2019 and by 11.7% in 2020. Its earnings are expected to rise at a compound annual growth rate of 16.0% in the next five years.
The stock still looks overvalued considering its PE multiple. So does this mean Fortinet’s stellar bull run has come to an end? Fortinet stock has easily outperformed broader markets. The stock has increased at an annual rate of 28% in the last five years.
Comparatively, its sales rose at a compound annual growth rate of 24.0%, while earnings rose by an impressive 42.0%. So why would investors pay 33x for earnings growth of 16.0% in the next five years and sales growth of 13.5% in the next three years?