Market sell-off: 1 split stock to buy now and hold forever

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The stock market sell-off has been brutal for tech companies this year as high valuations, soaring inflation, rising interest rates and fears of a recession have combined to shake investor confidence in tech companies. prospects of fast-growing companies.

Fortinet (FTNT -0.47%) is one of those companies that suffered from the market sell-off. Shares of the cybersecurity specialist are down 21% year-to-date despite impressive revenue and earnings growth, a far cry from the stellar returns it generated in 2021. However, management at Fortinet completed a 5-for-1 stock split in June. 22, a decision that makes this high-growth company accessible to a greater number of investors.

Of course, the valuation and market cap of Fortinet stock remain the same. It’s just that Fortinet shareholders will now have five shares for every share they held before the split. But the move could attract more retail investors to the stock — the split cut the price of each Fortinet share to less than $60 — which wouldn’t be surprising given its bright outlook. Let’s take a look at why this beat-up stock split game is worth buying after its fall in 2022.

Fortinet is growing rapidly

Fortinet released its first quarter 2022 results on May 4, reporting a 34% year-over-year increase in revenue to $955 million. More importantly, the company’s bookings jumped 50% year-over-year to $1.28 billion in the quarter. This points to better times for Fortinet, as reservations are the total value of all orders received by the company during the quarter.

Unsurprisingly, Fortinet ended the quarter with deferred revenue of $3.66 billion, a 33% increase over the prior year. Deferred revenue is money received in advance by a business for services that will be rendered later. It is recognized as revenue in the income statement once the services have been rendered. Fortinet’s healthy deferred revenue growth therefore indicates that its momentum is here to stay.

It’s also worth noting that Fortinet customers are increasing their spending on the company’s offerings. For example, Fortinet signed 90 deals worth $1 million or more last quarter, up from 66 a year earlier. The number of deals worth more than $500,000 increased 45% year over year to 243.

More importantly, Fortinet’s forecasts suggest it’s on track for healthy growth this year. The company expects $4.38 billion in revenue in 2022, which would represent a 31% increase over last year. Analysts are also optimistic for next year, forecasting revenue growth of 21%. Even better, Fortinet’s earnings are expected to grow at a rate of nearly 21% per year over the next five years.

These optimistic forecasts are not surprising given the potential growth of the market in which Fortinet operates and the company’s strong market share.

The impressive growth is sustainable

Fortinet sees lucrative opportunities in the cybersecurity and enterprise networking markets.

Enterprise networking, for example, represents an $80 billion opportunity for Fortinet, while the cybersecurity market presents an additional $100 billion in addressable revenue by 2025. Fortinet is well positioned to convert this huge end-market opportunity into real revenue.

For example, Fortinet’s core network security market is expected to generate $27 billion in revenue by 2027, up from $21 billion this year. The company is well positioned to capture this market, with a strong customer base that includes 80% of Fortune 500 companies. As a result, Fortinet’s market share in the firewall market now stands at 38%, which which is way ahead of its rivals in cybersecurity.

Meanwhile, Fortinet also holds a 20% share of the fast-growing Software-Defined Wide Area Network (SD-WAN) hardware appliance market, second only to Cisco Systems, which controls 25% of this space. SD-WAN cybersecurity demand is expected to grow at an annual rate of 21% over the next 10 years, which bodes well for Fortinet given its market share.

All told, it’s no surprise why Fortinet management expects to reach $8 billion in annual revenue by 2025 at a compound annual growth rate of 22%. Investors, however, can expect this cybersecurity stock to sustain this momentum longer given the catalysts discussed above, which is why they might consider buying this stock split game and trading it. keep for a long time.

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