“Much lower than what I think this stock is worth based on the fundamentals,” Cramer said.
Fortinet is the number-one player in “unified threat management.” The company collects antivirus, antispam, firewall, Web filtering, traffic optimization, wide-area network acceleration, virtual private networks, intrusion prevention, data-loss prevention and application onto one piece of hardware. It spares customers the hassle of buying separate products for each function, and it costs less.
Fortinet takes this one step further, though, offering 100 professionals in eight locations worldwide who monitor security outbreak in real time – for a fee, of course. Pay subscribers get the white-glove treatment, and Fortinet gets some seriously sticky revenues, as few people ever opt out. The service accounts for 60% of total revenues and carries a higher margin than Fortinet’s hardware.
Plus, the subscriptions provide earnings visibility, something investors are willing to pay up for. Oddly enough, analysts don’t include these revenues in their estimates, Cramer said, and “that’s what makes me so confident that Fortinet will be beating those estimates, [the] number one way stocks go higher.”
Beyond the products, Fortinet’s most valuable asset probably is its management, namely founder CEO Ken Xie and CFO Ken Goldman. Xie also founded another network-security firm, NetScreen, and took it public in 2001 at $16. By the time Juniper Networks bought the company in 2004 the stock had run 119%.
Goldman occupied the top finance job at Siebel, the customer relationship management software company, back in 2000. It’d be an understatement to say that was a tough time to work in the tech industry, but Siebel survived. In fact, the stock rebounded 87% from its bottom in 2002 to Oracle’s 2005 takeover bid, thanks in part to Goldman.
So how much is Fortinet really worth? Cramer estimated its 2010 earnings and looked at how similar companies trade on sales and operating profits to find out. Based on those figures, the price range should be between $13 and $19, he said, and “probably much closer to the high end.” Investors can “buy as much as you want” up to $13 and can even pick up shares above that level. His only caveat: It’s the IPO or nothing.
“You do not want to buy in the aftermarket,” Cramer said.
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