Growing demand for cybersecurity drives Fortinet
Fortinet share price on the move
On February 27, 2019, Fortinet's shares closed at $US87.90 ($117).
A pullback from here saw the price dip to $US80.67 the next week and it spent the subsequent five weeks consolidating between these two levels.
This saw the formation of a bullish technical chart pattern known as a rising wedge. On April 10 the price broke through the upper bound of the consolidation band with subsequent gains probing above $US90 for the first time since October 2018.
The recent gains in Fortinet, a cybersecurity company based in California, have attracted a lot of attention from analysts and investors alike.
Though it may not be a household name like Apple, Facebook, Amazon or Google, Fortinet is a major player when it comes to making online transactions safe and secure.
One way to appreciate Fortinet and its products is to think about how safe your online transactions are these days. For example, every time you buy an item online, whether from Amazon, eBay or other e-commerce shops, chances are that it is Fortinet's security network that ensures all your payments are safe.
Let's have a look at some of the factors driving its share price.
With its founders' expertise in cybersecurity and network infrastructure, it has established itself as one of the major players in the global market.
A recent industry report showed some eye-popping statistics on the growth and outlook of the cybersecurity market, including:
- Estimated to grow to about $US300 billion by 2024 (according to Global Market Insights) from around $US120 billion last year.
- $US15 billion cybersecurity funding from the US government.
- 9% increase in business/corporate spending for cybersecurity.
The increasing need to ensure the security of both corporate and government data and transactions almost ensures the growth prospects for cybersecurity providers like Fortinet.
As the world becomes more interconnected and reliance on computer networks becomes the norm, cybersecurity companies will continue to enjoy growing demand for their products and services.
This ever-increasing spending on cybersecurity from a wide range of sectors will have a flow-on effect on Fortinet's share price and overall valuation.
What the company does
Fortinet develops and markets cybersecurity software and appliances and services, such as firewalls, anti-virus measures, intrusion prevention and endpoint security.
It may not be your typical high-profile technology company making smartphones, mobile gadgets or social media apps, but its software and hardware are at the core of making online transactions safe.
Founded in 2000 by Ken Xie, a cybersecurity expert and entrepreneur, Fortinet reported revenue of $US1.495 billion in 2017.
Today it is among the top three cybersecurity companies worldwide and is one of the fastest growing network security companies.
According to a company report, Fortinet serves about 70% of Fortune 100 companies as well as a host of governments around the world.
In 2018, Fortinet reached $US2.15 billion in billings and was listed on the S&P500. It employs more than 6000 people in 79 countries.
Although the global cybersecurity and network protection industry is expected to be worth over $US300 billion in five years, it is a competitive space and Fortinet is up against other major players including Intel Security, Cisco Systems, IBM, Symantec and Verizon.
What the analysts say
A recent industry report showed that over the past 52 weeks Fortinet's share price had seen a massive 61% increase. And since the start of 2019 alone the price has been up by over 20%.
A recent survey of 31 analysts tracking Fortinet found that 18 of them rated it as a hold, 10 rated it as a buy or a strong buy while three advised investors to avoid the stock or sell it if they already own it.
In an analysis of Fortinet's chart and its recent price movement, the break above the six-week consolidation pattern (a rising wedge) is seen as a positive development. Each dip during the consolidative phase was shallower than the previous dip, indicating that buyers were becoming more aggressive on each retreat.
Sustained gains above the $US88.50 region are likely to see the stock challenge the all-time high from late September/early October (the highest close was $US92.27 on September 28 with the highest intraday high of $US94.37 on October 1).
Given the global demand for cybersecurity and expectations for further growth, driven by the US government's planned spending on security plus the ongoing demand from businesses and consumers for more secure online transactions, it looks as if Fortinet has a great deal of growth potential for investors.
We see it as a buy.