The shares of Fortinet Incorporated (FTNT) have increased by a massive 22%, reaching $136 mark, as the company published its first-quarter earnings. Total revenue has reached $576.9 million, which is 22% higher than a year ago.
Fortinet is an American company, based in Sunnyvale, California. It went public back in 2009. The firm offers cybersecurity products and services, including anti-virus programs, firewalls, intrusion prevention, and others. The recent report was also impressive because the company reported that its revenues from products have increased by 18.2% and from services by 24.1% compared to a year ago.
The company also disclosed that it had spent approximately $890 million on share repurchases. This is likely to be well received by investors. As the actual number of shares available on the market decreases, each remaining stock becomes more valuable over the long term.
As we can see from this chart, the shares of the company fell to near $25 level in the first quarter of 2016. However, after that, the stock has risen steadily, going all the way up to $120 in February 2020. Just like the majority of US companies, the Fortinet shares fell sharply from the end of the month, going back to $82. However, unlike many other stocks, FTNT regained most of its recent losses in a matter of weeks. So as those impressive results came in, the shares have not only returned to February levels but also surpassed it and reached an all-time high of $136.
Is it Good Time to Buy Fortinet (FTNT) Stock?
Taking into account all of the good news, some investors might decide to buy FTNT stocks and join the action. However, this line of reasoning might be problematic because of several factors:
- The Earnings per share of Fortinet is $1.85. Considering the recent price of $136, the current Price to Earnings ratio is 136/1.85 = 73.51. Now, in general, many investors consider those stocks too expensive, which have a P/E ratio of more than 20. So, having a P/E ratio of more than 73 clearly suggests that the shares of Fortinet are extremely overvalued. In fact, at those earnings, the stock price has to go all the way down to $37, to reduce the price to earnings ratio to 20, which is quite unlikely at the moment.
- Despite the years of success, the company has yet to pay any dividends. The management did not announce any plans for distributing any of the firm’s profits to shareholders. So the only way investors who purchase Fortinet shares can benefit is capital appreciation, which is far from guaranteed.
- The Recent stock decline in March 2020 has provided investors with some discounts. However, Fortinet stocks have regained all of their losses. So many investors might prefer to buy those shares which are still undervalued, rather than invest in overvalued ones.
Considering all of those factors we can conclude that company is indeed performing quite well at the moment. However, due to recent price action and a very high price to earnings ratio, it is safe to say that company’s shares are extremely overvalued. Therefore, it might be a better idea to invest in those stocks which are more reasonably priced.