Within the past couple of months, Facebook Inc (NASDAQ:FB), Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL), each have reported some type of user account or network breach. This has placed quite a bit of attention on enterprise security companies such as Fortinet Inc (NASDAQ:FTNT) to raise its defenses. And I don’t think it’s coincidence that the stock has risen as much as 35% during that span.
While Fortinet has also benefited from an excellent fourth-quarter earnings report, these shares have now reached expensive territory — at least when compared with Checkpoint Systems, Inc. (NYSE:CKP). Not to say that the stock can’t go higher, but the added premium has to come from somewhere. Can Fortinet deliver? And given the increased popularity in smaller players such as Palo Alto Networks Inc (NYSE:PANW) and Sourcefire, Inc. (NASDAQ:FIRE), it’s also worth asking whether Fortinet Inc (NASDAQ:FTNT)’s momentum can negotiate with current value.
Is being better enough?
The security services industry has become congested. Everyone’s looking to get in position for the growing demand of threat prevention. The good news, though, is that there are plenty of knucklehead hackers out there who will keep the industry booming for quite some time, which is a good thing for investors, in a manner of speaking.
However, though, while the pie might get bigger, it only means that the competition will want bigger pieces. Investors will demand it. But it won’t be easy. Market share will be based on what CIOs think is the best solution for their network. To that end, Fortinet Inc (NASDAQ:FTNT) is getting high praise over rivals such as Check Point and Dell Inc. (NASDAQ:DELL)‘s SonicWall.
A recent intrusion prevention system, or IPS, test-performed by Network World, which used a security test tool called Mu Dynamics, concluded that Fortinet had the highest catch rate among its peers. Those performing the test said: “In most products, we saw less than two percentage points of difference between the two sets, meaning that there’s very little tuning of the IPS possible. Fortinet’s FortiGate was the exception, showing a 10% to 25% difference in attacks blocked, offering the network manager more tools to match the IPS to their network.”
That’s great news for Fortinet Inc (NASDAQ:FTNT), which just also landed a significant contract with Eurosport, the No. 1 pan-European TV sport network, which said it will deploy FortiGate to protect employees across 17 countries in Europe, the Middle East, and Asia. While this announcement is new, there was also an extensive study by Eurosport’s IT department before Fortinet won the contract, which revealed that FortiGate’s performance levels were three times higher than Check Point. That’s all well and good. But what does all of this really mean for investors?
OK, then, how about in execution?
When you get these sorts of raving reviews, one should expect the reverence to manifest itself in the quarterly reports. Here, too, Fortinet is kicking tail. Recently, the company beat both top- and bottom-line estimates as revenue surged 25% year over year. This is while Check Point posted just 3% revenue growth.
