Cybersecurity specialist SentinelOne has experienced remarkable gains in the past year, with its stock price increasing by 86%. This means that investors who bought the stock a year ago have seen substantial returns on their investments within a short period. However, for those who missed out on buying the stock earlier, the current valuation of SentinelOne may seem steep, as it trades at 15 times sales. In comparison, the S&P 500 index has an average price-to-sales multiple of 2.7.
Despite the high valuation, a closer look at SentinelOne reveals significant growth and solid catalysts that justify its current valuation and indicate potential upside in the long run. SentinelOne reported impressive results in the third quarter of fiscal 2024, with a 42% increase in revenue to $164 million and a decrease in non-GAAP net loss per share. The company also raised its full-year revenue guidance, indicating a 46% increase from the previous fiscal year.
One of the key factors driving SentinelOne’s growth is its customer count, with an overall increase of 28% and a faster-paced increase of 33% in customers with annualized recurring revenue (ARR) of over $100,000. The company attributes this growth to the strong demand for its AI-powered security solution. SentinelOne’s recent introduction of Purple AI, a generative AI cybersecurity assistant, has further positioned it to capitalize on the growing adoption of generative AI in the cybersecurity space.
Financial services firm BTIG predicts that SentinelOne can gain more market share in the cybersecurity industry, thanks to its new products, including Purple AI. BTIG analyst Gray Powell raised his rating on SentinelOne to buy from neutral, estimating that the company can outperform Wall Street’s expectations. The adoption of generative AI in cybersecurity is expected to drive significant growth, with spending projected to increase from $9 million in 2022 to almost $14 billion in 2032.
Analysts anticipate a compound annual growth rate (CAGR) of 40% in SentinelOne’s bottom line for the next five years, which could result in a higher stock price. Furthermore, if SentinelOne achieves $1 billion in revenue by fiscal 2026 and maintains its current sales multiple of 15, its market capitalization could increase by 73% from current levels.
Overall, SentinelOne is well-positioned to benefit from the adoption of generative AI in the cybersecurity space. Its impressive growth, solid catalysts, and long-term market potential justify its current valuation and indicate potential upside in the stock price. Investors looking for an AI stock that can capitalize on the growth in cybersecurity should consider taking a closer look at SentinelOne.
