IT security company Fortinet
has delivered strong results recently, and despite recent falls, the
stock is still up nearly 12% this year. However, headline numbers do not
always tell the full story and Fools should look closely at changes in
its cash flow generation in order to better judge the company. Is it
maturing into the kind of cash cow that rival Check Point Software is, or is it moving in the other direction?
Fortinet's disappearing free-cash flow
As a company matures it typically sees its revenue growth slow, and a company like Check Point Software is a good example of this. Check Point Software's revenue growth has slowed to single-digits, but over the last five years it has converted an average of around 59% of its revenue into free-cash flow.
As a company matures it typically sees its revenue growth slow, and a company like Check Point Software is a good example of this. Check Point Software's revenue growth has slowed to single-digits, but over the last five years it has converted an average of around 59% of its revenue into free-cash flow.
Fortinet's mid-teens revenue growth tells investors
that the business is less mature than Check Point, but the real
question is how is Fortinet's free-cash flow conversion developing?
Unfortunately, investors received some bad
underlying news on this issue in 2013. Simply put, a combination of
weaker than expected revenue growth, and more importantly, the need to
carry more inventory managed to eat into its cash flow conversion.
Indeed, a table of its revenue and free-cash flow guidance over the year
reveals what happened.
No comments:
Post a Comment