Hi Hayong, paid was just turned on for the newsletter. You will receive future articles on business breakdowns with valuation estimates, be able to follow our market beating portfolio and all our moves (when we buy/sell and at what price) + much more.
There is a lot to like in Fortinet and the stock has been on my watch list. I am still undecided because i have a hard time in estimating the disruption risk : ability to penetrate successfully big enterprise segment and the cloud based security solution segment. If these challenges become too difficult to overcome, the investment case disappears. Although at a higher valuation, Palo Alto might be a safer play. What is your take on that ? Thanks
I do like Palo Alto as well, but to me, the valuation is stretched with a forward PE of 53 and a forward FCF yield of 3.3. It has been a fantastic performer over the last 10 and 5 years, and given the right price, I'd be interested in it. For me, its a big plus that Fortinet is run by its founder as well, which is not the case for Palo Alto.
I usually try to make an educated estimate based on the growth rate of the industry, the different segments the business is involved in. Whether or not the business is increasing its market share, or just maintaining its lead. Whether or not the competition is intensifying, putting a pressure on margins. Whether or not the company is diluting its shareholders by issuing shares (Not always a negative given the right reinvestment opportunities). Whether or not they have operating leverage that will kick in if they manage to grow their top line at a solid clip. Whether or not they have "untapped markets" that they are entering, and as a bonus I like to determine if the business has optionality and can build on their existing product/service portfolio, although the optionality will just be a bonus and not something I add to the growth rates in my DCF.
Altough forward growth estimates are easy to come by, I like to make my opinion about what I believe the business will produce in the future. Of course, both the general forecasts and my forecasts will be wrong. I'm primarily trying to be directionally right, not precisely wrong.
I noticed you used in the template FCF, but LTM FCF of FTNT is 2,036b (2.06). Can you clarify what the 1.98 number means? On another note, any specific reason why you don't use the FCF/share metric (2.48)? Thanks again
Hello Isaac, my source might be at fault here. I used Yahoo Finance for the FCF number, they are usually accurate, but sometimes they miscategorize some items so that the FCF is slightly off.
Using FCF or FCF per share provides me the same result in this case, the only difference is that if I use FCF I get the market cap, but if I use the per share FCF I get the per share value. Only reason why I prefer to look at overall FCF in a DCF is that I get a feel of what the business is worth as a whole. I'm reminded by Buffett's quotes on owning the entire business and not just the stock :)
For growth numbers I like to use FCF per share (Like is shown in this article) because it also takes dilution into account.
I'm Dylan from [https://dsc007.substack.com]. My focus is on uncovering and discussing impactful resources. Recognizing the importance of quality content, I'm committed to adding value for my audience. I admire your work and believe collaboration could be mutually beneficial for our growth and ideas.
Thanks for your feedback
Hi, the terminal multiples used in FTNT valuation model are P/FCF right?
Correct
I have a question. I can't find paid article. if I upgrade monthly paid, then I can see other article and community?
And thanks for linking all our articles, really appreciate it!
Hi Hayong, paid was just turned on for the newsletter. You will receive future articles on business breakdowns with valuation estimates, be able to follow our market beating portfolio and all our moves (when we buy/sell and at what price) + much more.
There is a lot to like in Fortinet and the stock has been on my watch list. I am still undecided because i have a hard time in estimating the disruption risk : ability to penetrate successfully big enterprise segment and the cloud based security solution segment. If these challenges become too difficult to overcome, the investment case disappears. Although at a higher valuation, Palo Alto might be a safer play. What is your take on that ? Thanks
Apologies, this comment slipped my awareness.
I do like Palo Alto as well, but to me, the valuation is stretched with a forward PE of 53 and a forward FCF yield of 3.3. It has been a fantastic performer over the last 10 and 5 years, and given the right price, I'd be interested in it. For me, its a big plus that Fortinet is run by its founder as well, which is not the case for Palo Alto.
Thanks and noted! For growth rate, how do you estimate it? Using EPS 5yr forward growth estimates as a benchmark?
I usually try to make an educated estimate based on the growth rate of the industry, the different segments the business is involved in. Whether or not the business is increasing its market share, or just maintaining its lead. Whether or not the competition is intensifying, putting a pressure on margins. Whether or not the company is diluting its shareholders by issuing shares (Not always a negative given the right reinvestment opportunities). Whether or not they have operating leverage that will kick in if they manage to grow their top line at a solid clip. Whether or not they have "untapped markets" that they are entering, and as a bonus I like to determine if the business has optionality and can build on their existing product/service portfolio, although the optionality will just be a bonus and not something I add to the growth rates in my DCF.
Altough forward growth estimates are easy to come by, I like to make my opinion about what I believe the business will produce in the future. Of course, both the general forecasts and my forecasts will be wrong. I'm primarily trying to be directionally right, not precisely wrong.
Hi, great write up!
I noticed you used in the template FCF, but LTM FCF of FTNT is 2,036b (2.06). Can you clarify what the 1.98 number means? On another note, any specific reason why you don't use the FCF/share metric (2.48)? Thanks again
Hello Isaac, my source might be at fault here. I used Yahoo Finance for the FCF number, they are usually accurate, but sometimes they miscategorize some items so that the FCF is slightly off.
Using FCF or FCF per share provides me the same result in this case, the only difference is that if I use FCF I get the market cap, but if I use the per share FCF I get the per share value. Only reason why I prefer to look at overall FCF in a DCF is that I get a feel of what the business is worth as a whole. I'm reminded by Buffett's quotes on owning the entire business and not just the stock :)
For growth numbers I like to use FCF per share (Like is shown in this article) because it also takes dilution into account.
Hi Invest In Assets,
I'm Dylan from [https://dsc007.substack.com]. My focus is on uncovering and discussing impactful resources. Recognizing the importance of quality content, I'm committed to adding value for my audience. I admire your work and believe collaboration could be mutually beneficial for our growth and ideas.
If my content resonates with you, I'd be grateful for a recommendation on your Substack list. My most recent post [https://open.substack.com/pub/dsc007/p/who-is-jeff-bezos?r=1mx14f&utm_campaign=post&utm_medium=web] may be of interest to you.
Thanks for considering!
Best,
Dylan