FORTINET INC (NASDAQ:FTNT): A GARP Strategy Pick with Strong Growth and Fair Valuation

Investors looking for growth opportunities without paying too much often consider the "Growth at a Reasonable Price" (GARP) strategy, which combines strong growth potential with fair valuations. One method to find these stocks is by using fundamental screens that select companies with high growth scores, good profitability, stable finances, and valuations that aren’t excessive. FORTINET INC (NASDAQ:FTNT) appears as a potential fit for this strategy, as shown by its fundamental analysis report.

Growth: A Key Factor

Fortinet’s growth numbers are impressive, earning it a Growth score of 8/10 in the fundamental analysis. The company has shown:

• Consistent past results: Revenue increased by 14.46% over the last year, with a five-year average annual growth rate of 22.46%. Earnings per share (EPS) grew even faster, rising 34.90% year-over-year and averaging 36.84% over the past several years.
• Optimistic future projections: Analysts predict EPS growth of 9.15% and revenue growth of 13.49% per year in the near term, signaling continued progress, though at a slightly slower pace than before.

These numbers indicate Fortinet is benefiting from rising demand for cybersecurity solutions, a sector with long-term potential as businesses focus more on digital security.

Valuation: Fair for the Growth Provided

While Fortinet isn’t inexpensive outright, its Valuation score of 5/10 shows a balanced view when compared to its growth and profitability:

• P/E and Forward P/E: The stock has a P/E of 28.72, slightly higher than the S&P 500 average (26.51) but lower than the software industry’s average (54.15). Its forward P/E of 25.80 is also more appealing than the broader market’s 34.09.
• Enterprise Value/EBITDA and Price/FCF: Both ratios are lower than 75%+ of industry peers, suggesting the market isn’t overvaluing its cash flow.
• PEG Ratio Note: The high PEG ratio (which includes growth) indicates some premium, but this is partly reasonable given Fortinet’s high profitability and leading position in the sector.

For GARP investors, this mix of growth and fair valuation is important—it avoids the extremes of overpriced growth stocks while still providing exposure to a fast-growing business.

Profitability and Financial Stability: Strengthening the Case

Fortinet’s Profitability score of 9/10 and Financial Health score of 8/10 further support its appeal:

• High margins: A 30.60% net profit margin and 81.42% gross margin put it among the top performers in the software industry, showing strong pricing power and efficiency.
• Strong returns on investment: ROIC of 29.24% and ROE of 94.14% demonstrate effective use of earnings.
• Stable finances: Low debt (Debt/Equity of 0.24) and a solid Altman-Z score (5.41) reduce financial risk, while a Debt/FCF ratio of 0.49 indicates plenty of ability to meet obligations.

These factors match the GARP strategy’s focus on quality growth—companies that aren’t just growing quickly but are also financially sound and consistently profitable.

Why This Matters for Balanced Growth Investing

The combination of strong growth, fair valuation, and solid fundamentals makes Fortinet an attractive option for investors looking for balanced exposure to the cybersecurity sector. Unlike high-growth stocks with extreme valuations, Fortinet’s metrics suggest it’s priced more reasonably relative to its earnings path and industry standing.

For those interested in finding similar opportunities, our Affordable Growth Screen highlights other stocks that meet these criteria.

Disclaimer: This analysis is not investment advice. Investors should do their own research or consult a financial advisor before making decisions.