Thread by @convequity

$FTNT investment case. Not investment advice

1) Secular tailwinds. 2) Significant relative mispricing. 3) Moderate DCF undervaluation. 4) Share buyback.

$FTNT's been our best performer in the past 13 months though we're still looking to add on dips. This thread will explain why

1) Secular tailwinds

There are several catalysts + tailwinds that funnel straight into FTNT. And these trends are still very young thus providing a long runway of growth.

This diagram is the basis for the thesis.

1) Heightened awareness/call to action triggered by the proliferation of the most sophisticated stealthy cyberattacks (like the SolarWinds breach unveiled in Dec-20).

1) Fear of booming ransomware threats - which are rising in frequency, skill, and ransom demands.

1) Here is a long-term ransomware damage cost projection by Cybersecurity Ventures.

1) Lack of education surrounding how to most effectively combat ransomware - it's quite unbelievable that many IT professionals still think that VPNs are suitable.

1) Along with Zero Trust, microsegmentation is needed to thwart ransomware. Though it's a costly undertaking so we believe $FTNT's market-leading TCO will benefit with the growing demand for microsegmentation.

1) Growing desire for vendor consolidation - the fragmentation of companies' security defenses is making them way more vulnerable to attack.

1) Though despite CISOs' desire for consolidation, they also want BoB solutions.

This is why $FTNT (and $PANW) will continue to benefit - they both have the broad security platforms with market-leading solutions.

1) Biden's EO for cybersecurity that is having global ramifications across companies directly and indirectly serving the federal supply chain.

Affected companies will mostly turn to vendors with experience, scale, and solid reputations = $FTNT

1) Headwinds of managing security and productivity as organizations shift to hybrid work/infrastructure environments.

1) A concern for IT admin is the disparity in network performance for remote and office-based workers.

1) $FTNT is an ideal vendor to deliver security + productivity enhancements.

Zero Trust requires continual verification which can add latency. FTNT's intelligent networking (SD-WAN) + superior computing power makes it a winner for hybrid environments.

1) Service providers ramping up spend as they prep their networks for 5G.

Higher # of cell towers > more traffic management complexity > more SD-WAN required > FTNT has BoB SD-WAN thanks to built-in ZT security & superior compute.

1) Less modernized verticals that are connecting things online.

These verticals are often targets for ransomware attacks because they are rapidly digitalizing and leaving things exposed.

They need microsegmentation but tend to be more budget restrained === $FTNT.

1) To summarize the secular tailwinds, $FTNT's competitive advantages all pretty much boil down to their two decades of software + hardware focus. As a result, they have 5x-10x more compute power vs rivals which makes them a very low TCO + high ROI vendor

2) FTNT has a Rule of 40 in the top 4% but a forward EV/FCF in the bottom 8%.

3) Inc. SBC in the FCF calculation we arrived at a 20% DCF undervaluation. Exc. SBC it is 30% undervalued. Not huge but with this stock you have momentum on your side as well as the relative mispricing previously outlined.

4) Solid share buyback program that has recently been bumped up by $1.25bn resulting in a $2bn remaining repurchase authorization.

* To summarize, this is a high quality growth stock with a value misperception. It has many years of benefitting from secular tailwinds that are still very young. It's long enduring hardware integration makes it a winner it many areas of security.