This Day On The Street
Continue to site
ADVERTISEMENT
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 Must Secure Market Share

Billings, which grew 10% in the July quarter, will be a closely monitored metric of how well revenue is expected to be as the year enters its last quarter. Bulls will disagree, but I believe aside from Fortinet's revenue growth struggles, it has been the company's weaker-than-expected performance in billings that has kept the stock from advancing relative to its other high-multiple peers, like Checkpoint.

The other issue is that the security services industry has become highly congested with several new entrants such as Aruba Networks (ARUN), which has begun to position itself for the growing demand of threat-prevention. And given Fortinet's current market standing and its strong reputation for quality, the company's products are often on the higher-end in terms of price.

Consequently, with shrinking corporate budgets, IT leaders have shown a willingness to sacrifice quality for affordable pricing, which has impacted Fortinet's market share. By contrast, during that span, Palo Alto Networks (PANW) has strung together impressive numbers, including 54% revenue growth in the recent quarter.

To that end, absent a meaningful change in Fortinet's strategy to uncover ways to produce above-average growth and margins, I don't see any catalysts -- beyond an acquisition -- that will push this stock higher. Not to mention, the stock is already expensive with a P/E that is 4.5 times higher than Cisco and 3 times higher than CheckPoint.

So, while I've always appreciated Fortinet's strategy of acquiring higher-margin business, management must now re-evaluate the effectiveness of that approach on the basis of these new entrants, like Palo Alto, for which profit is not yet a priority. They want market share. Couple this with Cisco's recent buy of fast-growing Sourcefire and it looks as if Fortinet -- as dominant as its products may be -- may remain a laggard for the foreseeable future.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a co-founder of StockSaints.com where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

2 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
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
CSCO $25.88 0.00%
FTNT $42.14 0.00%
AAPL $110.00 -2.40%
FB $86.72 -3.00%
GOOG $601.75 -2.70%

Markets

Chart of I:DJI
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASDAQ 4,776.5080 -51.8170 -1.07%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs