Parkev Tatevosian, CFA on $FTNT (Nov 2, 2026)

Fortinet announced a 29% increase in total billing and a 20% increase in total revenue. I like to see companies achieve invoice growth that exceeds revenue growth, because that indicates that their revenue growth is sustainable and perhaps even accelerating.

Management raised its forecasts for the third time this year; however, even after all these positive developments, Fortnite's stock price collapsed following the company's earnings announcement.

I believe this is a result of the stock price already rising significantly before these quarterly financial results were released. Remember, I was optimistic about the cybersecurity sector a few years ago.

I have recommended several of these stocks as buying opportunities, including Fortinnet, Sentinel One, Octa, and others.

However, two months ago, I downgraded several of these cybersecurity companies, including Fortinet. It downgraded its rating from " buy" to "hold," indicating that investor enthusiasm had been overblown. Isn't that so?

Investors have been overly excited about cybersecurity needs in the age of proxies and artificial intelligence. I understand that this would be a very positive thing , but stock prices have risen by three figures in some cases, including Fortinet.

That's why I think the stock price dropped after what felt like a fairly strong quarterly financial result . Now, investors are asking me if it's a buying opportunity on the dip, and that's the question I want answered: Is it time to upgrade Fortune stock to a "buy" rating again?

Interestingly, analysts who follow Fortinet have lowered their estimates for the company's earnings per share growth over the next few years. Those estimates have been steadily rising since the middle of this year, when earnings per share estimates increased from 12% to 17%.

Following the quarterly financial update, analysts lowered their forecast to 15.7% growth.

I think analysts on Wall Street also realize what I realized a few months ago, which is that expectations were exaggerated. Therefore, I am pleased to see some of these companies, including Fortinet, rising by three figures here in 2026, reflecting my feeling that this sector was already poised for significant expansion .

Fortinet not only increased its revenue by about 20% and raised its bills by about 30%, but achieved this while recording record operating margins.

Operating margins have risen over the past twelve months to 33%, compared to about 4% in 2017. Recently, Fortinet has been able to accelerate revenue growth while expanding margins, which is not the case for Palo Alto Networks, which has achieved revenue growth but at the expense of profit margins.

Fortinet's returns on invested capital are also excellent. It is so excellent that I do not think it is sustainable at these levels, but even if it were to drop by half from 111% to 50%, this return on invested capital would still be excellent.

At 111%, Fortinet's return on invested capital is among the very best of all the companies I follow. This is because they are not only achieving record levels of profit margins, but also because the sector itself is relatively asset-light.

It does not require much in terms of capital expenditure or working capital to maintain, sustain and develop these products.

So, when we look at the valuation, you can understand why I lowered the stock's rating earlier. Isn't that so? A few months ago I downgraded it because the valuation, although very attractive going into 2026 when it was trading at a forward P/E ratio between 20 and 25, has more than doubled to a forward P/E ratio exceeding 50.

Isn't that right? I felt that these ratings, which exceeded 40, were exaggerated and overly optimistic.

Now, following the decline that came after the earnings announcement, Fortinet stock is trading at a forward P/E ratio of 35, which I find more reasonable. You could say it's a bit overvalued, but I see it as reasonable given the accelerating growth of invoices, invoice growth that outpaces revenue growth, record operating margins , great returns on invested capital, and a sector booming as a result of the spread of artificial intelligence.

I also updated the discounted cash flow estimates for Fortinet, and I valued the company at $102. The current market price, even after the significant drop, is $136. Therefore, it still seems slightly overvalued after including the safety margin.

You could say it's overrated. Therefore, I had downgraded Fortinet's stock rating to " hold," and I still believe it is a hold option . The valuation has not fallen enough to justify raising the rating, so today I will reiterate my rating of Fortinet stock at "hold".