Why Fortinet Stock Fell Hard Today
Key Points
Fortinet's sales rose 14% to $1.72 billion in the third quarter.
The company's earnings of $0.74 per share easily beat Wall Street's consensus estimate.
But investors weren't happy with the company's fourth-quarter sales guidance.
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Shares of Fortinet (NASDAQ: FTNT), a cybersecurity company, tumbled today after the company reported its third-quarter results. Fortinet beat Wall Street's consensus revenue and earnings estimates for the quarter, but investors latched onto the company's fourth-quarter sales guidance, which was lower than expected.
As a result, Fortinet stock was down by 6.3% as of 1:56 p.m. ET.
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Fortinet's third-quarter results were solid
Fortinet reported strong sales growth of 14% in the third quarter, reaching $1.72 billion and outpacing analysts' consensus estimate of $1.7 billion. The company's earnings were even more impressive, with non-GAAP (adjusted) earnings per share rising 17% to $0.74 -- surpassing Wall Street's estimate of $0.63 per share.
Adding to the positive news for the quarter was the fact that Fortinet's billings grew by 14% from the year-ago period to $1.81 billion, and the company achieved a record non-GAAP operating margin of 37%.
But despite this good news and the company beating analysts' consensus estimates, investors weren't happy with management's fourth-quarter sales guidance of $1.85 billion at the midpoint -- which was below analysts' consensus estimate of about $1.87 billion. The result of this led to a significant sell-off of Fortinet's stock today.
A bit of an overreaction
With Fortinet growing sales and earnings at a steady pace and beating analysts' consensus estimates for both, today probably should have been a good day for Fortinet shareholders. Instead, investors overreacted to the fact that the company's fourth-quarter guidance was below expectations.
With today's sell-off, Fortinet's share price is up just 3.2% over the past year, compared to the S&P 500's 16.4% gains. Considering that solid quarterly results weren't enough to boost Fortinet's stock, investors should probably expect more volatility ahead.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fortinet. The Motley Fool has a disclosure policy.
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