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The Veteran's found the Rocky Balboa of businesses, but how much is it worth...? Β 

You can’t view this chart πŸ‘‡

Without listening to this music... πŸ‘‡

That's because Fortinet (FTNT) might be the best pound for pound fighter out there. And it's a company you probably haven't ever heard of so deserves a fanfare on that basis alone.

Or does it? Let's look at Fortinet's sales and earnings growth...

And now some valuation metrics πŸ‘‡

How about Fortinet's price performance? Β 

As an investor you have to decide if Fortinet is valued correctly.

  • Is it cheap or expensive?
  • Has it peaked or is it only just getting started?

Looking at the performance data you might be tempted to think it's peaked. After all it’s fallen by -11% plus over the last quarter and it's trading on a PE ratio of 94 times earnings.

Hang on a sec... That multiple is forecast to fall to less than 54 times over the next 12 months. Fortinet has grown its earnings by +129% over the last 5 years and is forecast to grow EPS by +20.9% this year as well.

πŸ—£ "Yeah, but a price to sales of 15.53 times and a similar price to cash ratio make it look expensive"

πŸ—£ "And there's the price to book ratio of 45.95 and the price to free cash flow of 43.81 times to consider as well"

Aren't those just the hallmarks of a modern growth business? Long of intangibles like goodwill and Intellectual Property and short of old economy assets like plants and inventories?

Let’s look at this slide from Fortinet's December '21 investor presentation πŸ‘‡

Pretty impressive. The next slide provides us with an insight into how the business has been performing since it IPO’d in 2009 πŸ‘‡

(Rule of 40 = the idea that a software company's combined growth rate and profit margin should be greater than 40%)

Fortinet has some impressive and growing market share credentials too πŸ‘‡

Has all this got you thinking? Is the old grey matter whirring?

I hope so because this is quite a complex problem!

So what's the answer? Is Fortinet a Champ or a Chump?

There is no right or wrong answer!

Only the right or wrong decision, that is buy or sell, and of course the timing of that decision.

FWIW I think Fortinet looks like a very exciting company. Yes its priced for performance and continued growth but that stance can be justified...

Once again extracted from that Dec '21 presentation ( TAM =Total Addressable Market)

Then there's this πŸ‘‡

Valuation is personal. Beauty is in the high of the beholder.

You have to decide if you feel it right to own Fortinet or any other company or investment.

To reach that comfortable state you'll need a process. Ideally this should be a holistic and systematic approach. One that looks at the whole narrative for the stock and does so in cool-headed rules-based fashion.

If your potential investment or trade is ticking a majority of boxes say 7 out of 10 or more then you can feel comfortable with your decision.

Adrian Alberts made the very valid point in the chat recently that markets are just auctions that try to match supply and demand. They do this by trying to find an equilibrium price or value.

The challenge for us as traders or investors is to try to judge where that equilibrium price or valuation will be in a specific time frame and what the drivers are that could take it there?

Quoting from another of Adrian’s recent posts β€œ Why should the market reward your trade?”

Making sure you understand the value of a proposition can help to answer that question and narrow the odds of success in your favour. After all failing to prepare is preparing to fail as they say in the military.

πŸ”” The Veteran’s Moats and Multiples
β€œDo they have a moat or is their value based on prevailing market sentiment and little else?”

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