Cybersecurity firm SentinelOne (NYSE: S) has seen its stock surge so far in 2024. In fact, the share price more than doubled from a 52-week low of $12.43 last June to a high of $30.76 this past Valentine’s Day.
SentinelOne’s share price hit a high on Feb. 14 thanks to Bank of America upgrading the stock from a neutral rating to a buy. With shares still hovering near this high, it’s fair to wonder whether it’s now too late to buy SentinelOne stock.
To determine whether it still makes sense to invest in this cybersecurity company despite the elevated stock price, let’s look into SentinelOne in more detail. Now is a good time to do so, because the company’s next earnings call, covering its fiscal fourth quarter (ended Jan. 31), is scheduled for March 13.
SentinelOne faces industry pros and cons
SentinelOne benefits from operating in the cybersecurity industry, a space where protection from cybercriminals is necessary for organizations with any degree of digital usage, whether that’s a website, email, customer data, or financial records.
This environment is why the cybersecurity industry is forecast to reach $183 billion in 2024, and grow to $274 billion by 2028. So demand for cybersecurity services is robust, and that provides a multi-year revenue tailwind for SentinelOne.
But it also creates a challenge, because operating in an industry with high customer demand brings fierce competition. As a result, a number of firms dedicated to cybersecurity exist, including CrowdStrike and Palo Alto Networks. Add to that several corporations that offer cybersecurity as part of their digital solutions, such as Microsoft, IBM, and Cisco Systems.
So in evaluating SentinelOne as an investment, a key factor is how well the company is capturing its share of a crowded cybersecurity market. One way to gauge this is by looking at its growth in customer count, and in this regard, SentinelOne is doing well.
In its fiscal third quarter, ended Oct. 31, 2023, SentinelOne had over 11,500 clients. Contrast this with the 4,700 customers it had in 2021’s fiscal first quarter, the quarter before the company’s IPO in June of that year. In just two-and-a-half years, SentinelOne achieved impressive customer growth of 145%.
SentinelOne’s track record of success
In conjunction with customer count, it’s also helpful to look at SentinelOne’s annual recurring revenue (ARR) — or run rate — generated from the company’s clients. It provides insight into SentinelOne’s ability to not only acquire new customers, but also to grow their spending on SentinelOne’s solutions.
In fiscal Q3, the ARR reached $663.9 million, a 43% jump from the prior year. This ARR growth manifested into SentinelOne’s Q3 sales of $164.2 million, a 42% year-over-year increase. And Q3 was the latest in a multi-year streak of rising revenue since its 2021 IPO.
This sales streak is set to continue. SentinelOne expects fiscal Q4 revenue to come in at $169 million, a double-digit increase over the prior year’s $126.1 million. The company’s customer, ARR, and revenue growth show SentinelOne is successfully capturing clients with its cybersecurity solutions.
The company’s platform has incorporated artificial intelligence since SentinelOne’s inception in 2013. Its AI-enabled solution can identify and proactively deal with cyberattacks without the need for human intervention, making it fast and efficient.
These AI capabilities help SentinelOne keep pace with the tools available to cybercriminals given AI’s rise to prominence last year with ChatGPT’s emergence. In fact, SentinelOne uncovered cyberattack software incorporating ChatGPT to perform hacks using AI.
Other considerations with SentinelOne stock
Despite the strong customer and revenue growth, the company is not profitable. SentinelOne exited fiscal Q3 with a net loss of $70.3 million. However, that’s an improvement over the prior year’s net loss of $98.9 million. SentinelOne has made some cost-cutting moves as it strives to reach profitability next year.
Its fiscal Q3, the company’s balance sheet was outstanding. Total assets were $2.2 billion, far exceeding total liabilities of $615 million. Cash, cash equivalents, and investments alone were $1.1 billion.
Even though SentinelOne’s stock has increased dramatically over the past year, the company’s share price is still below its IPO price of $35. So it’s not unreasonable for strong fiscal Q4 results to potentially push the stock to greater heights than its recent 52-week high. In fact, Bank of America set a price target of $35.
Given SentinelOne’s history of customer and revenue growth, its improving bottom line, and strong balance sheet, SentinelOne stock looks like a buy.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Robert Izquierdo has positions in Bank of America, Cisco Systems, CrowdStrike, International Business Machines, Microsoft, and SentinelOne. The Motley Fool has positions in and recommends Bank of America, Cisco Systems, CrowdStrike, Microsoft, and Palo Alto Networks. The Motley Fool recommends International Business Machines and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Is It Too Late to Buy SentinelOne Stock? was originally published by The Motley Fool