Shares of Fortinet (FTNT) have been strong performers lately, with the stock up 10.2% over the past month. The stock hit a new 52-week high of $266.02 in the previous session. Fortinet has gained 78.2% since the start of the year compared to the 18.5% move for the Zacks Computer and Technology sector and the 19.1% return for the Zacks Security industry.
What's Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on April 29, 2021, Fortinet reported EPS of $0.81 versus consensus estimate of $0.74.
For the current fiscal year, Fortinet is expected to post earnings of $3.74 per share on $3.1 billion in revenues. This represents a 11.64% change in EPS on a 19.8% change in revenues. For the next fiscal year, the company is expected to earn $4.34 per share on $3.6 billion in revenues. This represents a year-over-year change of 15.9% and 15.95%, respectively.
Fortinet may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.
Fortinet has a Value Score of F. The stock's Growth and Momentum Scores are A and B, respectively, giving the company a VGM Score of B.
In terms of its value breakdown, the stock currently trades at 70.7X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 69.6X versus its peer group's average of 59.5X. Additionally, the stock has a PEG ratio of 4.96. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Fortinet currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Fortinet passes the test. Thus, it seems as though Fortinet shares could have potential in the weeks and months to come.
How Does Fortinet Stack Up to the Competition?
Shares of Fortinet have been rising, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also impressive, including CDW (CDW), CACI International (CACI), and Alphabet (GOOG), all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.
However, it is worth noting that the Zacks Industry Rank for this group is in the bottom half of the ranking, so it isn't all good news for Fortinet. Still, the fundamentals for Fortinet are promising, and it still has potential despite being at a 52-week high.
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