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Fortinet secures the largest enterprises, service providers, and government organizations around the world. With more than 595,000 customers, Fortinet ranks number one in the most cyber security appliances shipped worldwide. The company’s sales are divided into sales of services (64,7%) and products (35,5%) and are distributed geographically as the United States (31,3%), Americas (10,2%), Europe/Middle East/Africa (38,2%) and Asia/Pacific (20,3%).
The Fortinet Security Fabric can deliver security without compromise to address the most critical security challenges and enable organizations to achieve their digital innovations outcomes. It has a technological leadership with 1279 global patents, which is nearly three times more than comparable Network Security companies. In the meantime, the total available market represents $138B in 2022 and should grow to $199B by 2026. This growth is in line with the 720% increase in sales over the last ten years. We can therefore also expect very good growth for the company, with earnings generally above expectations and excellent analyst coverage.
Like other quality companies, we should look at operating and net margins, leverage and visibility. The company had very good operating margins of over 26% in 2021 and net margins of over 18%. This performance allows it to generate more free cash flow and an EBITDA that increased by 854% between 2013 and 2021. At the same time, change in enterprise Value/EBITDA has an average of 29,1x over eight years. And, the company's leverage (Debt/EBITDA) is also very good, at -1.63x in 2021. Admittedly, the stock is paying 56 times its projected earnings for 2022. This may seem expensive but is still below its historical average of 623 times. As our beloved Warren Buffet would say: « Price is what you pay, value is what you get ».
Repligen Corporation was founded in 1982 by two distinguished scientists who pioneered breakthrough advances in science and technology. It specializes in the development and commercialization of bioprocessing technologies and systems. The objective is to increase the flexibility in the manufacturing process of biological drugs, mainly because their business is influenced by the growth in demand for biologic drugs, particularly the global market for monoclonal antibodies (mAbs). The goal is to increase the flexibility in the manufacturing process of biological drugs. The group's business consists of four franchises: filtration, chromatography, process analysis and proteins.
Repligen achieves a Compound Annual Growth Rate (CAGR) of around 41.5% (compared to an average of 19% for its main competitors). The return to shareholders has been +6000% in ten years including share buybacks (a policy that the company wishes to continue in the coming years). The company has managed to maintain a high profitability, since margins are among the highest on the stock exchange. Its core activity clears big profits. It has an operating margin of 33.6% in 2013 and 32.1% in 2021. This should remain stable at around 30% by 2024. The net margin remains stable at around 20%, that is to say an increase of 141% since 2019.
Repligen presents a good economic profitability with an ROE around 10% in 2021, with a very good leverage (Debt/EBITDA) at -1.03x the same year. The company saw its EBITDA soar with +1362% between 2014 and 2021, representing the highest increase in its sector. Repligen delivered a solid quarter – it generally posts figures that are above expectations – with net income and EPS up. Also, there is high visibility into the group’s activities for the coming years. Outlook on future revenues from analysts covering the equity remain similar.
Arista Networks is an industry leader in data-drive and specialize in the development and marketing of Cloud Ethernet network switches. Arista was founded by Andy Bechtolsheim, Ken Duda and David Cheriton, who are well-known in the tech industry. The company's revenues are divided into two distinct categories: sales of product (80.6%) and services (19.4%) and geographical distribution is mainly in the Americas (73.1%), Europe/Middle East/Africa (16.5%) and Asia/Pacific (10.4%).
It has seen its capitalization grew by 906% over the last six years, thanks to the massive development of this sector. Various acquisitions, according to the group’s strategy, allow the company to expand its business, gain market share and come up with new products. Arista acquired Pluribus Networks for cloud fabric product. It’s pretty normal that the company’s debt is growing, but at the same time, sales are growing and should reach $5116M in 2024 against $2948M in 2021. The company’s EBITDA is following the trend: + 896% over the last 8 years, little bit under his EBIT: +936%.
Arista has one of the highest operating and net margins of his sector. Cisco and Motorola are among its biggest competitor. They both have greater capitalization, revenue and market share; But Arista showed for 2021, operating and net margin equal to 38,7% and 28,5% compare 33,5% and 21,3% for Cisco and 25,9% and 15,2% for Motorola. Since 2019, the net cash position remained the same – around 3000 – with a good leverage (-2,86x), slightly above the other presented company. After all, Arista’s ROE is above his two main competitors despite a ROA slightly below Cisco.
Paychex is a human capital services company, specialize in the development of integrated management software packages that handle payroll, benefits and other human resource functions, as well as business insurance for small and medium-size businesses. Founded in 1971, the company has more than 710,000 business clients in the U.S. and Europe, 118,000 clients, 15,000 employees and more than 650 dedicated HR professionals. The business activity is divided by activity sector: salary management (73,3%), human resources management (24,5%) and fund management (2,2%).
As well as other quality companies, Paychex made various acquisition to expand and try to become a world leader in its sector: Flock, Oasis, Lessor…etc. A certain correlation could be made between those and the rise of the stock price. Especially since the capitalization grew by 268% over ten years. The P/E ratio is currently 32x which remains constant. At the same time, it could be interesting to look at the Paychex’s yield which is the highest in the sector. Its main competitor Recruit Holding has a yield of 0,39% compare to 2,24% for Paychex in 2022.
Also, the company’s EBITDA rose 104% since 2013 to reach $2050 millions in 2022. Paychex can count on its operating margin, which recovered some stability at around 39,9% after being lowered to 36% in 2020. It also benefits from good analyst coverage. They forecast a rise to 41% in 2024. Net income and net margin are following the same trend and despite the pandemic, these two didn’t fall significantly, they mainly remained constant and grew slightly to reach $1393 millions and 30,2% respectively in 2022. Also, the enterprise value/EBITDA has an average of 18,1x for 11 years, compared to 15,3x and 10,8 for its two main competitors and a leverage of -0,21x for 2022. However, it’s pretty rare for a quality stock to distribute dividend, as we’ve seen for the companies presented previously. Moreover, the value of the dividend is growing years after, with an average of +10%/year and should reach $3,18/stock in 2023.
Synopsys specializes in the development of software programs aimed mainly at manufacturing semi-conductors, computers and electronic equipment. Synopsys has its business activity separate as: sales of software and hardware (90.6%) and provision of services (9.4%) mainly distributed in the United States (46,6%), followed by China (13,4%) and Europe (10,5%).
The problem in the software industry is that Synopsys ($57B) has to deal with behemoths like Microsoft ($2164B), Atlassian ($47B), Dassault System ($56B), Cadence ($52B), or Sea Limited ($39B) … Despite massive competition, Synopsys could gain some market share and develop their business. In the space of four years, the company has seen its market capitalization increase by more than 150%, the second-highest behind Candence Design System (+168%).
It is in very good financial health in many respects. First of all, the net cash position jumped by more than 150% between 2019 and 2022, despite numerous acquisitions in the field of software, silicon IP, engineering or verification & prototyping. These available resources allow for a good leverage (Debt/EBITDA) at -0.95x in 2021. At the same time, the company's ROE and ROA are rather good, at 21.1% and 12.8%, but remain below its competitors, comparable to Dassault System and higher than Sea Limited. After that, Synopsys completes the main criteria of a quality company with a leverage below two (-0.95x to be precise), and a change in enterprise value/EBITDA of 21.3x over 11 years. With a very good visibility, good profits and good margins, 30.5% operating margins and 18% net margins. The quality is reflected in the price, and the stock is currently trading at 69.3x earnings.
