Audioeye Shares Rise 521% YTD: How Should You Play the Stock?

It doesn't matter your age or experience: taking full advantage of the stock market and investing with confidence are common goals for all investors. Luckily, Zacks Premium offers several different ways to do both.

The popular research service can help you become a smarter, more self-assured investor, giving you access to daily updates of the Zacks Rank and Zacks Industry Rank, the Zacks #1 Rank List, Equity Research reports, and Premium stock screens.

It also includes access to the Zacks Style Scores.

What are the Zacks Style Scores?

The Zacks Style Scores, developed alongside the Zacks Rank, are complementary indicators that rate stocks based on three widely-followed investing methodologies; they also help investors pick stocks with the best chances of beating the market over the next 30 days.

Each stock is given an alphabetic rating of A, B, C, D or F based on their value, growth, and momentum qualities. With this system, an A is better than a B, a B is better than a C, and so on, meaning the better the score, the better chance the stock will outperform.

The Style Scores are broken down into four categories:

Value Score

Value investors love finding good stocks at good prices, especially before the broader market catches on to a stock's true value. Utilizing ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and many other multiples, the Value Style Score identifies the most attractive and most discounted stocks.

Growth Score

Growth investors, on the other hand, are more concerned with a company's financial strength and health, and its future outlook. The Growth Style Score examines things like projected and historic earnings, sales, and cash flow to find stocks that will experience sustainable growth over time.

Momentum Score

Momentum investors, who live by the saying "the trend is your friend," are most interested in taking advantage of upward or downward trends in a stock's price or earnings outlook. Utilizing one-week price change and the monthly percentage change in earnings estimates, among other factors, the Momentum Style Score can help determine favorable times to buy high-momentum stocks.

VGM Score

What if you like to use all three types of investing? The VGM Score is a combination of all Style Scores, making it one of the most comprehensive indicators to use with the Zacks Rank. It rates each stock on their combined weighted styles, which helps narrow down the companies with the most attractive value, best growth forecast, and most promising momentum.

How Style Scores Work with the Zacks Rank

The Zacks Rank, which is a proprietary stock-rating model, employs earnings estimate revisions, or changes to a company's earnings expectations, to make building a winning portfolio easier.

Investors can count on the Zacks Rank's success, with #1 (Strong Buy) stocks producing an unmatched +25.41% average annual return since 1988, more than double the S&P 500's performance. But the model rates a large number of stocks, and there are over 200 companies with a Strong Buy rank, plus another 600 with a #2 (Buy) rank, on any given day.

But it can feel overwhelming to pick the right stocks for you and your investing goals with over 800 top-rated stocks to choose from.

That's where the Style Scores come in.

You want to make sure you're buying stocks with the highest likelihood of success, and to do that, you'll need to pick stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B. If you like a stock that only as a #3 (Hold) rank, it should also have Scores of A or B to guarantee as much upside potential as possible.

Since the Scores were created to work together with the Zacks Rank, the direction of a stock's earnings estimate revisions should be a key factor when choosing which stocks to buy.

For instance, a stock with a #4 (Sell) or #5 (Strong Sell) rating, even one that boasts Scores of A and B, still has a downward-trending earnings forecast, and a much greater likelihood its share price will decline as well.

Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.

Stock to Watch: Fortinet (FTNT)

Headquartered in Sunnyvale, CA, Fortinet, Inc. is a provider of network security appliances and Unified Threat Management (UTM) network security solutions to enterprises, service providers and government entities worldwide.

FTNT is a #2 (Buy) on the Zacks Rank, with a VGM Score of B.

Additionally, the company could be a top pick for growth investors. FTNT has a Growth Style Score of A, forecasting year-over-year earnings growth of 31.9% for the current fiscal year.

11 analysts revised their earnings estimate upwards in the last 60 days for fiscal 2024. The Zacks Consensus Estimate has increased $0.14 to $2.15 per share. FTNT boasts an average earnings surprise of 23.6%.

With a solid Zacks Rank and top-tier Growth and VGM Style Scores, FTNT should be on investors' short list.

Zacks Investment Research

Have you been paying attention to shares of Fortinet (FTNT)? Shares have been on the move with the stock up 17.3% over the past month. The stock hit a new 52-week high of $97.35 in the previous session. Fortinet has gained 66% since the start of the year compared to the 30.4% move for the Zacks Computer and Technology sector and the 31.1% return for the Zacks Internet - Software industry.

What's Driving the Outperformance?

The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on November 7, 2024, Fortinet reported EPS of $0.63 versus consensus estimate of $0.51.

For the current fiscal year, Fortinet is expected to post earnings of $2.15 per share on $5.87 billion in revenues. This represents a 31.9% change in EPS on a 10.74% change in revenues. For the next fiscal year, the company is expected to earn $2.20 per share on $6.57 billion in revenues. This represents a year-over-year change of 2.36% and 11.86%, respectively.

Valuation Metrics

Fortinet may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.

Fortinet has a Value Score of D. The stock's Growth and Momentum Scores are A and A, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 45.2X current fiscal year EPS estimates, which is a premium to the peer industry average of 32.9X. On a trailing cash flow basis, the stock currently trades at 49.5X versus its peer group's average of 28.2X. Additionally, the stock has a PEG ratio of 2.58. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Fortinet currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Fortinet meets the list of requirements. Thus, it seems as though Fortinet shares could have a bit more room to run in the near term.

How Does FTNT Stack Up to the Competition?

Shares of FTNT have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is DoubleVerify Holdings, Inc. (DV). DV has a Zacks Rank of # 2 (Buy) and a Value Score of D, a Growth Score of B, and a Momentum Score of A.

Earnings were strong last quarter. DoubleVerify Holdings, Inc. beat our consensus estimate by 42.86%, and for the current fiscal year, DV is expected to post earnings of $0.49 per share on revenue of $662.74 million.

Shares of DoubleVerify Holdings, Inc. have gained 14.6% over the past month, and currently trade at a forward P/E of 55.56X and a P/CF of 30.4X.

The Internet - Software industry is in the top 21% of all the industries we have in our universe, so it looks like there are some nice tailwinds for FTNT and DV, even beyond their own solid fundamental situation.

Zacks Investment Research

For most investors, how much a stock's price changes over time is important. This factor can impact your investment portfolio as well as help you compare investment results across sectors and industries.

Another factor that can influence investors is FOMO, or the fear of missing out, especially with tech giants and popular consumer-facing stocks.

What if you'd invested in Fortinet (FTNT) ten years ago? It may not have been easy to hold on to FTNT for all that time, but if you did, how much would your investment be worth today?

Fortinet's Business In-Depth

With that in mind, let's take a look at Fortinet's main business drivers.

Headquartered in Sunnyvale, CA, Fortinet, Inc. is a provider of network security appliances and Unified Threat Management (UTM) network security solutions to enterprises, service providers and government entities worldwide.

Its solutions are designed to integrate multiple levels of security protection, including firewall, virtual private networking (VPN), antivirus, intrusion prevention (IP), web filtering, anti-spam and wide area network (WAN) acceleration.

Through its products and subscription services, the company provides integrated protection against dynamic security threats while simplifying the IT security infrastructure. Its solutions incorporate application-specific integrated circuits, hardware architecture, operating system, and associated security and networking functions to defend against multiple categories of IT security attacks without impacting network performance.

The company’s network security gateways protect customer data, reduce security complexities and lower the total cost of ownership. Customers are able to implement their security policies on traffic between internal networks and the Internet, as well as between internal and private networks shared with partners.

Its flagship UTM solution consists of the FortiGate appliance product line and FortiGuard security subscription services.

Its products and services are sold through a network of more than 20,000 channel partners worldwide, including distributors, resellers, value-added resellers and managed service providers. The company caters to more than 450,000 customers worldwide that includes most of the Fortune 100 companies.

Fortinet reported revenues of $5.3 billion in 2023, which increased 20.1% from 2022. Product revenue was $1.93 billion, up 8.2% while Service revenue of $3.38 billion improved 28.1% year over year in 2023.

The company faces significant competition with Palo Alto Networks, CyberArk, Qualys and Cisco in the network security as well as cloud security space.

Bottom Line

Putting together a successful investment portfolio takes a combination of research, patience, and a little bit of risk. For Fortinet, if you bought shares a decade ago, you're likely feeling really good about your investment today.

A $1000 investment made in November 2014 would be worth $17,890.28, or a gain of 1,689.03%, as of November 12, 2024, according to our calculations. This return excludes dividends but includes price appreciation.

Compare this to the S&P 500's rally of 194.23% and gold's return of 116.12% over the same time frame.

Analysts are anticipating more upside for FTNT.

Fortinet’s third-quarter results reflect strength in demand from large enterprise customers and growth in the company's security subscriptions amid a slowdown in networking products, along with challenges in sales execution and marketing efficiency. Continued deal wins, especially those of high value, are a key driver. Higher IT spending on cybersecurity is further expected to aid Fortinet in growing faster than the security market. The focus on enhancing its unified threat management (UTM) portfolio through product development and acquisitions is a tailwind. Shares of the company have outperformed the industry in the year-to-date period. However, intensifying competition due to increasing consolidation in the security industry poses concerns. Increased hiring and mergers & acquisitions spending remain overhangs on margin. The stock is up 17.33% over the past four weeks, and no earnings estimate has gone lower in the past two months, compared to 11 higher, for fiscal 2024. The consensus estimate has moved up as well.

Zacks Investment Research