Why Fortinet Inc's Shares Bulked Up Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Fortinet jumped to an 11% gain after Tuesday's opening bell, but have since settled into a still-strong pop of roughly 8% as of this writing. Investors are cheering the cybersecurity company's first-quarter earningsbeat, which was reported after Monday's close.

So what: Fortinet's first-quarter revenuewas up 26% year-over-year to $212.9 million thanks to a 36% year-over-year increase in quarterly billings to $254.3 million. Adjusted earnings were $0.08 per share, and free cash flow came in at $59.7 million for the quarter. Both top- and bottom-line results bested Wall Street's projections, which had called for $205.2 million in revenue and $0.06 in adjusted EPS. Adjusted EPS fell from an $0.11-per-share result in the year-ago quarter on weaker operating margins, but free cash flow rose 20% year-over-year, largely due to Fortinet's reduced capital expenditures.

Looking ahead, Fortinet now expectssecond-quarter revenue to range from $224 million to $228 million, resulting in adjusted EPS of $0.08 to $0.09. Fortinet also raised its full-year revenue guidance from an earlier $915 million to $925 million range to a new range of $935 million to $940 million. The company's second-quarter EPS guidance falls below Wall Street's $0.11 projection, but both second-quarter and full-year revenue guidance ranges now handily best the Street's projections of $222.1 million and $926.1 million, respectively.

Now what: Fortinet appears to be entering the high-burn phase of a fast-growing software enterprise, as it's now plowing much of its money back into business development to propel faster top-line growth. Despite this, Fortinet remains profitable, though at a P/E of 250, it's certainly not priced at bargain rates. The company's price-to-free-cash-flow ratio is much more reasonableat 38.7 (prior to yesterday's report) for a fast-growing company, and the reasonable rate of today's pop offers investors plenty of reasons to stick around.

The article Why Fortinet Inc's Shares Bulked Up Today originally appeared on Fool.com.

Alex Planes has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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