2 Reasons to Watch S and 1 to Stay Cautious

SentinelOne currently trades at $17.19 per share and has shown little upside over the past six months, posting a small loss of 0.5%. The stock also fell short of the S&P 500’s 22.9% gain during that period.

Is now the time to buy S? Or does the price properly account for its business quality and fundamentals? Find out in our full research report, it’s free for active Edge members.

Why Does SentinelOne Spark Debate?

Built on the principle of "fighting machine with machine," SentinelOne (NYSE:S) provides an AI-powered cybersecurity platform that autonomously prevents, detects, and responds to threats across endpoints, cloud workloads, and identity systems.

Two Positive Attributes:

1. ARR Surges as Recurring Revenue Flows In

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

SentinelOne’s ARR punched in at $1.00 billion in Q2, and over the last four quarters, its year-on-year growth averaged 26.3%. This performance was fantastic and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes SentinelOne a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue.

2. Projected Revenue Growth Is Remarkable

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.

Over the next 12 months, sell-side analysts expect SentinelOne’s revenue to rise by 21.3%. While this projection is below its 31.6% annualized growth rate for the past two years, it is commendable and suggests the market is baking in success for its products and services.

One Reason to be Careful:

Operating Losses Sound the Alarms

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

SentinelOne’s expensive cost structure has contributed to an average operating margin of negative 37.2% over the last year. This happened because the company spent loads of money to capture market share. As seen in its fast revenue growth, the aggressive strategy has paid off so far, and Wall Street’s estimates suggest the party will continue. We tend to agree and believe the business has a good chance of reaching profitability upon scale.

Final Judgment

SentinelOne’s positive characteristics outweigh the negatives. With its shares trailing the market in recent months, the stock trades at 5.2× forward price-to-sales (or $17.19 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .

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