Fortinet Stock on Verge of Major Breakout

FTNT stockFortinet Stock to Ride Uptick in Cyberattacks

The world’s computers and networks are constantly under attack from hackers and foreign governments. The alarming rate of the cyberattacks have experts predicting the demand for cybersecurity solutions to significantly ramp up, driving up the prospects for cybersecurity stocks like Fortinet Inc (NASDAQ:FTNT).

Just think about all of the alleged hacking from Russia that took place during the elections and the constant barrage of cyberattacks on businesses and governments around the world.

The reality is that the intrusion into networks and databases to steal critical data has become the norm.

Whether it is stealing intellectual capital from technology companies, classified information from governments, or customer data from major retailers, the threat is real and will only worsen as the world networks link up.

The global cybersecurity market could surge to a whopping $202.36 billion by 2021. This is massive and provides significant tailwinds for the sector and the cybersecurity players. (Source: “Cyber Security Market worth 202.36 Billion USD by 2021,” MarketsandMarkets Research Private Ltd., last accessed March 30, 2017.)

In my view, cybersecurity companies such as Fortinet will benefit immensely from the growth.

The company has a global footprint with over 290,000 clients, including the majority of S&P 500 companies.

My Bull Case for FTNT Stock

FTNT stock is up 27% year-to-date, easily outperforming the S&P 500 and delivering alpha to investors.

Yet there is more room to grow for Fortinet stock, which has been rallying since the February 2016 bottom.

The FTNT stock chart displays a bullish ascending triangle, with recent breakouts at $34.00, currently attacking the $38.00 level, representing a key technical resistance.

ftnt stock chart

Chart courtesy of StockCharts.com

The daily Fortinet stock chart shows the bullish golden cross, with the 50-day MA moving above the 200-day MA. There is also a bullish upside trading gap.

ftnt stock chart

Chart courtesy of StockCharts.com

At above $38.00, a sustained move could catapult FTNT stock to target resistance levels at $44.00, $48.00, and its high of $50.31 from August 2015, representing a potential move of 32%.

The bullish technical picture at Fortinet is also supported by strong fundamentals, which point to a higher stock price.

The Compound Annual Growth Rate (CAGR) for revenues from 2013 to 2016 was an impressive 27.34%, with revenues rising from $615.30 million in 2013 to $1.27 billion in 2016.

These are excellent metrics, but the growth rate is slated to decline to 16.10% and 14.70%, respectively for 2017 and 2018. (Source: “Fortinet, Inc. (FTNT),” Yahoo! Finance, last accessed March 30, 2017.)

I don’t view this as a major concern at this time, given the estimates could be on the conservative side, especially if the cybersecurity spending ramps significantly higher as many pundits expect.

As far as the earnings side, Fortinet has a five-year CAGR for earnings of 21.34%, well above the past five years’ CAGR of 7.18%. This implies Fortinet is expecting to grow its earnings at a much higher rate going forward versus the recent years.

FTNT stock currently trades at around 36 times its 2018 EPS. This may seem excessive, trading at 1.64 times the 22-times price-earnings multiple of the S&P 500, but keep in mind that Fortinet is also growing its revenues and earnings at a much higher rate than the S&P 500, so the bigger multiple premium for FTNT stock is justified.