This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Fortinet's Momentum Challenged

NEW YORK ( TheStreet) -- Every now and then growth investors come to a point when they have to make certain critical decisions about a stock. None is more important than when they realize that the momentum needed to keep a growth story going is starting to evaporate.

One such example is security giant Fortinet (FTNT - Get Report). While the company can go a few more quarters producing above-average growth, I worry that too much of its valuation assumes competition will just roll over and concede the market. However, its most recent quarter suggests otherwise.

The Quarter That Was

For the period ending in September, the company reported net income of $17.2 million, or 10 cents a share on revenue of $136.3 million. While revenue rose 17% year over year and in line with consensus estimates, deferred revenue soared to $340 million -- improving by 24% from the same period a year ago. Though profits arrived below estimates, on a non-GAAP basis net income arrived in line with estimates of 14 cents per share -- up from 13 cents year over year.

The company also reported higher sales and marketing expenses, which grew by almost $8 million. Likewise research and development expenses grew by almost $4 million. As a consequence, Fortinet's margins took a slight hit. Gross margins shed 100 basis points year over year, while the company also saw its operating income decline by 1.5%. Nonetheless, that the company produced 17% growth in revenue can offset of lot of uneasiness, especially considering the tough macro climate.

But investors didn't see it this way.

The stock has lost over 20% since announcement. The company's weak guidance might have had a lot to do with investor concerns. For the fourth quarter, the company said it expects revenue to come in the range of $142 million to $146 million -- below analyst's estimates of $146 million. Likewise, net income forecast of 15 cents was shy of consensus by a penny.

For the full fiscal year, management sees profits of 51 cents per share on a revenue range of $524 million to $528 million. Profit expectations were a penny below estimates and similarly, the top of the range of the revenue guidance was $600,000 short of analysts' expectations.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CHKP $82.60 -1.10%
CSCO $27.96 -2.37%
FTNT $32.33 -3.06%
PANW $151.44 -2.93%
AAPL $95.03 -2.90%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs