Is Fortinet a Buy at a Discount: Valuation, Buybacks, and Cybersecurity Sector Positioning

The cybersecurity sector has emerged as a cornerstone of modern enterprise infrastructure, driven by escalating digital threats and the rapid adoption of AI-driven technologies. Within this landscape, Fortinet (FTNT) has positioned itself as a leader in network security, leveraging innovations in Secure Access Service Edge (SASE) and artificial intelligence to address evolving risks. For value investors, the question remains: Is Fortinet's current valuation a compelling opportunity, or does its premium pricing reflect its robust fundamentals? This analysis evaluates Fortinet's financial metrics, buyback program, and sector positioning to determine its investment potential.

Valuation Metrics: A Mixed Picture

Fortinet's Q3 2025 valuation metrics reveal a stock trading at a premium relative to book value but at a discount to sector averages on key earnings multiples. The company's price-to-earnings (P/E) ratio stands at 34.07, slightly above the broader software industry average of 31.8x according to Wisesheets but significantly lower than the 66.1x multiple of its direct peers as reported by SimplyWall. Meanwhile, its enterprise value-to-EBITDA (EV/EBITDA) ratio of 27.75 according to GuruFocus is below the cybersecurity sector's average of 33.7x as noted by Wisesheets, suggesting undervaluation relative to industry benchmarks.

However, Fortinet's price-to-book (P/B) ratio of 86.84 indicates a stark premium to its tangible assets, a common trait among high-growth technology firms. This discrepancy highlights the market's willingness to pay for Fortinet's recurring revenue model and dominant position in network security. For value investors, the key is whether these multiples align with the company's ability to sustain its growth trajectory.

Buyback Program: A Catalyst for Shareholder Value

Fortinet's Q3 2025 buyback program underscores its commitment to returning capital to shareholders. The company repurchased 23.3 million shares for $1.83 billion, funded by $568 million in free cash flow. These buybacks, part of a $9.25 billion authorized program, are expected to boost earnings per share (EPS) by reducing the share count. With Q3 revenue growing 14% year-over-year to $1.72 billion and operating margins hitting a record 36.9%, Fortinet's financial health provides a solid foundation for sustained repurchases.

The effectiveness of these buybacks is further amplified by Fortinet's disciplined capital allocation. By prioritizing share repurchases during periods of strong cash generation, the company is signaling confidence in its long-term prospects while enhancing returns for existing shareholders. This strategy aligns with value investing principles, where companies with strong free cash flow and undervalued stock prices are prime candidates for buybacks.

Cybersecurity Sector Positioning: A Leader in a High-Growth Market

Fortinet's dominance in the cybersecurity sector is underpinned by its innovative product suite and strategic partnerships. The company's integration of SASE and AI-driven threat detection has positioned it at the forefront of the industry, with its FortiSASE solution experiencing over 100% year-over-year billings growth. Additionally, Fortinet's recognition as the "Overall Leader" in IT/OT network protection by Westlands Advisory reinforces its competitive edge.

The global cybersecurity market, projected to grow at a 9.3% compound annual rate to $368.19 billion by 2033, provides a fertile environment for Fortinet's expansion. The company's 14% revenue growth in Q3 2025 outperformed the average 13.16% growth of its competitors as reported by CSI Market, reflecting its ability to capture market share. Moreover, Fortinet's partnerships, such as its collaboration with the NHL Vancouver Canucks, demonstrate its capacity to diversify revenue streams and strengthen brand visibility.

Risks and Considerations

While Fortinet's fundamentals are robust, investors must consider potential headwinds. The cybersecurity sector's reliance on AI introduces risks related to shadow AI adoption and quantum computing threats. Additionally, Fortinet's high P/B ratio may not be sustainable if growth slows or if macroeconomic conditions dampen investor appetite for premium valuations.

Conclusion: A Buy for the Long-Term Value Investor

Fortinet's valuation metrics, while mixed, suggest a stock that is undervalued relative to sector averages on earnings-based multiples. Its aggressive buyback program, fueled by strong free cash flow, enhances shareholder value and supports a higher EPS trajectory. In a cybersecurity market poised for sustained growth, Fortinet's leadership in SASE and AI-driven security solutions positions it to capitalize on long-term trends. For value investors willing to tolerate a premium on book value, Fortinet offers a compelling combination of disciplined capital allocation, robust financials, and a strong competitive moat.