Cybersecurity Giant's 24% Stock Drop: Time to Buy?
Fortinet, one of the leading players in the cybersecurity industry and ranked as the 161st largest component of the S&P 500 by market capitalization, witnessed a noteworthy 24% decline in its stock price within a single day following the release of its 2Q23 financial results. Given such a stature, one would have expected a higher level of stability in its share price.
This sudden drop can likely be attributed to two primary factors.
Firstly, Fortinet failed to meet analysts' expectations for its 2Q23 revenue, even though it outperformed estimates in terms of earnings.
Secondly, Fortinet decided to revise its guidance downward for the entirety of 2023, now projecting a revenue range of $5.35 billion to $5.45 billion. This adjustment represents a decrease from its previous guidance, which had set revenue expectations between $5.425 billion and $5.485 billion for the same period.
The reduction in guidance by 1% appears disproportionately harsh when considering the 24% decline in the share price. This discrepancy becomes even more pronounced when we contrast Fortinet with Palo Alto (PANW), which I view as Fortinet's primary competitor, as both companies offer comprehensive software and hardware solutions across various cybersecurity domains.
The 24% drop in Fortinet's share price also dragged down Palo Alto's share price, causing an 8% decline. However, upon releasing its own financial results, Palo Alto experienced a significant 15% surge in its share price.
Palo Alto's results did not particularly stand out. Similar to Fortinet, it fell short of analysts' revenue expectations. Furthermore, its guidance for the upcoming quarter suggested a year-over-year growth rate of 16% to 18%, aligning with Fortinet's forecast.
