Fortinet crushed earnings yesterday with a beat and raise. Really pressed for time but some fellow investors wanting to see the take home. This dovetails well into my Soitec post in terms of ROIIC and MEROI driving share price (not 1st order top and bottom line metrics on earnings OR guidance).

Fortinet’s historical GAAP ROIIC is in the high 20s. They beat on all the critical metrics for the quarter, exceeding MEROI; but that doesn’t matter for a high quality, high (valuation) flier. It typically trades at a TTM P/E range in the mid 40s to 50s. That’s a hefty premium.

Late last year, due to some timing and recognition issues, I felt the bearish response to earnings was overdone. There FortAI rollout was picking up steam. We nearly tripled our position that quarter as the market sold it off.

Well, guidance blew Wall Street away, re-acceleration of growth due to AI and continued operating leverage of their very sticky enterprise base. This is what the Mauboussin Metrics tell us (screenshot): even taking the mid-point, we have an implied forward ROIIC using FY 26 guidance of 46.5%.

Trying to find its complementary MEROI was not done as it is an assumption of an assumption. But as the market was not expecting a barnburner quarter AND had sold off FTNT in the back part of last year post earnings, it was not expecting this. This causing a re-rating, up almost 20% today.