SentinelOne’s 27.7% return over the past six months has outpaced the S&P 500 by 19.1%, and its stock price has climbed to $18.25 per share. This performance may have investors wondering how to approach the situation.
Following the strength, is S a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
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 $1.16 billion in Q1, and over the last four quarters, its year-on-year growth averaged 22.8%. This performance was impressive 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 Free Cash Flow Gains to Pump Profits
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Over the next year, analysts predict SentinelOne’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 3.5% for the last 12 months will increase to 12.5%, giving it options for capital deployment (investments, share buybacks, etc.).
One Reason to Be Careful:
Operating Losses Sound the Alarm
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 29.9% 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 has huge potential even though it has some open questions, and with its shares beating the market recently, the stock trades at 5.1× forward price-to-sales (or $18.25 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Stocks We Like Even More Than SentinelOne
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