By Lisa Thompson
NASDAQ: FATN
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FatPipe (NASDAQ: FATN) continues to beat its internal 18% target, as shown in its September results. In its second fiscal quarter of 2027 ending September 30, FatPipe reported revenue up 22% to $4.8 million and net income of $1.2 million, aided by a $371,000 tax reversal. Pretax income was $831,000 or a 17.2% margin. Its salesforce is aging, and its newer products are adding further revenue.
On August 18, FatPipe introduced its newest product, “Constellation”, an AI-Assisted complete network management solution designed to give IT teams greater visibility into their devices and infrastructure across their local and Wide Area Networks. Constellation provides a central view of the LAN and WAN, helping organizations monitor network devices such as switches, routers, firewalls, servers, wireless equipment, and other supported network components. Besides monitoring network health, Constellation monitors every detail, even down to server fan status, optical connector brightness, and their voltage and amperage. It can monitor every single aspect of a network, including every single device, every single port in a switch, and the fiber connection. It also maintains an inventory of products and tracks applications on devices. It can tell customers when software is coming up for renewal, which software is vulnerable and has not been updated, and which software licenses are not even being used.
The advantage from a customer perspective is that they don’t have to go to multiple vendors for different pieces of information. This product has been well accepted as it integrates everything, including other vendors’ products, and shows it in one place. It can be added to any customer’s setup even if they do not have FatPipe’s other offerings or are mid-contract. As it is a new, unique offering, it is not replacing any FatPipe or its competitors’ products. Customers pay per number of devices monitored.
Key Capabilities
- Centralized LAN/WAN Visibility: Provides a consolidated view of devices and network activity across the local area network.
- Affordability
- Continuous Network Monitoring: Monitors network infrastructure and device status to identify potential issues.
- Simplified Troubleshooting: Helps quickly locate network problems and better understand the condition of connected infrastructure. AI also helps the system learn and identify potential issues.
- Unified Network Management: Complements FatPipe’s SD-WAN and security solutions, giving customers broader visibility across both WAN and LAN environments across their geographically distributed network.
- Inventory and Asset Management: Tracks assets, including addition and removal of assets, software versions on systems, and utilization of those assets.
The sales force continues to grow at FatPipe. It is currently at 30 salespeople, and management said it plans to add six by the end of March. The company is also expanding its sales partnerships. It recently signed up TD Synnex (previously called Tech Data), the largest technology distributor in the world, as well as Carahsoft Technology and Howard Technology Solutions, and we expect more. Its largest partner is still bringing in the great majority of sales. It contributed 67% of sales in the six months ending September 30.
In FYQ2 2027, the company recognized the remaining third of the $7 million contract announced in July for public schools, negotiated at the state level. This one large contract caused the majority of the bump in recurring revenue year over year. This large contract is opening doors to other business as it proves FatPipe is capable of bigger projects.
While FatPipe is showing estimated fiscal year revenue growth of only 13%, on a 2026 calendar year basis, growth is expected to be much more impressive at 39% and should be looked at when comparing it to its peers. On an earnings basis, the company has an uphill battle next year because of taxes. This year it is using up its NOLs and will be going from getting back $1.5 million in taxes to paying a full tax rate of 22% next year. This will cause EPS to decline year over year, while pretax profit grows. Looking past FY 2028, earnings growth should be in line with revenue growth, if not surpass it due to operating leverage. Our current valuation is $7.70 per share, which is approximately 5x EV/Sales versus a peer average of 8.8x. On a PE basis, the stock is also undervalued given its growth.
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