Is the Recent Pullback for Fortinet Stock Justified?


Jun. 12 2019, Updated 1:16 p.m. ET

Fortinet stock fell despite earnings beat

Fortinet (FTNT) stock has fallen recently. The stock has slumped over 20.0% since April 15 this year. Fortinet announced its first-quarter results last month and reported revenue of $472.6 million with adjusted EPS of $0.46. Analysts expected the firm to post revenue of $471.8 million and EPS of $0.39.

While Fortinet beat Wall Street estimates, investment bank Citi (C) downgraded the stock from “neutral” to “sell” and lowered the 12-month price target for the stock to $78.0 from $84.0. Citi expects that weak product trends will impact Fortinet’s sales going forward.

Fortinet shares also fell as trade wars concerns grew deeper and impacted broader markets that drove its stock price lower. The economic slowdown in China has impacted Fortinet stock recently.

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Strong revenue and earnings growth

Fortinet’s sales rose 18.0% in the first quarter while EPS rose 39.0%. The bottom-line growth was driven higher as gross profit margin rose 50 basis points to 76.1%. Operating expenses grew 15.0% but it was at a lower rate compared to sales growth.

However, during Fortinet’s earnings call, the management stated that it experienced strong sales across Asia and Europe regions in the first quarter. Fortinet estimates sales to grow between 15.0% to 17.0% with earnings growth between 20.0% and 24.0% year-over-year and in line with analyst estimates.

Though revenue growth is slowing, a double-digit growth rate will likely still keep investors more than interested.


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