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Is SentinelOne Stock a Buy Now?

By Leo Sun – Dec 11, 2021 at 6:10AM

Key Points

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The cybersecurity company is still a high-risk play.

SentinelOne (S 2.48%) has taken investors on a wild ride since its public debut at $35 per share in late June. The cybersecurity company's stock started trading at $46 on the first day, and eventually rallied to an all-time high of $78.53 in November before tumbling back below $50.

Does that pullback finally make SentinelOne an attractive investment? Let's take a fresh look at its business and valuations to find out.

A hybrid approach to the cybersecurity market

SentinelOne provides a mix of cloud-based cybersecurity services and on-site virtual appliances. Instead of relying on teams of human analysts, it uses its AI-powered Singularity XDR (extended detection and response) platform to detect and counter threats.

SentinelOne claims this hybrid, AI-powered approach is superior to CrowdStrike's (CRWD 1.64%) cloud-only strategy in two ways. First, SentinelOne hosts its detection tools locally instead of in the cloud, which arguably makes it a safer choice for compromised or disrupted internet networks. Second, it claims its usage of AI algorithms gives it a faster response time than CrowdStrike, which still relies on human analysts.

A person using a secure tablet.

Image source: Getty Images.

Those claims are bold, but CrowdStrike lists SentinelOne as a major competitor in its latest SEC filings. Palo Alto Networks (PANW 0.72%) CEO Nikesh Arora also mentioned SentinelOne as a competitor for its AI-powered Cortex platform during a conference call in May.

How fast is SentinelOne growing?

SentinelOne's revenue doubled to $93.1 million in fiscal 2021, which ended back in January. In the first nine months of fiscal 2022, its revenue soared 120% year over year to $139.2 million. It expects its revenue to rise 114%-115% for the full year.

SentinelOne's total number of customers rose more than 75% year over year to over 6,000 at the end of the third quarter. Within that total, its number of customers that generated over $100,000 in annualized recurring revenue (ARR) increased 140% to 416. Its dollar-based net revenue retention rate also hit a record high of 130%. Those key growth metrics have remained remarkably high throughout fiscal 2021 and the first three quarters of 2022:


FY 2021

Q1 2022

Q2 2022

Q3 2022

Customer Growth (YOY)





Growth in Customers with $100,000+ in ARR (YOY)





Dollar-Based Net Revenue Retention Rate





Source: SentinelOne. YOY = Year-over-year. *Not disclosed in its S-1 filing.

SentinelOne's growth accelerated throughout fiscal 2022, but it's still much a smaller business than CrowdStrike.

CrowdStrike's total number of subscription customers also increased 75% year over year in its latest quarter, but it serves more than twice as many customers as SentinelOne and expects to generate over seven times as much revenue this fiscal year. CrowdStrike's retention rate has also stayed above 120% ever since its IPO in 2019.

However, CrowdStrike is still growing at a slower rate than SentinelOne: It only expects its revenue to rise 63%-64% this year.

But what about the losses and valuations?

SentinelOne's top-line growth is stunning, but its losses are also alarming. Its net loss widened from $76.6 million in fiscal 2020 to $117.6 million in fiscal 2021, then more than doubled year over year to $199.4 million in the first nine months of fiscal 2022. In other words, the company spent more than two dollars for every dollar of revenue it generated.

SentinelOne is still sitting on $1.66 billion in cash and equivalents thanks to the $1.2 billion it raised in its IPO, but it needs to stabilize those massive losses to prove that its business model is sustainable.

SentinelOne generates lower revenue per paying customer than CrowdStrike, so it needs to cross-sell more services (as CrowdStrike does with its cloud-based modules) to prove that it has enough pricing power in the crowded cybersecurity market.

However, the biggest issue for SentinelOne is still its valuation. With a market cap of $12.8 billion, it's still trading at 47 times forward sales. The bulls will argue that high premium is supported by SentinelOne's triple-digit sales growth, but analysts expect its revenue to rise 74% next year and then decelerate over the following years.

We should take those forecasts with a grain of salt, but SentinelOne's steep losses and frothy valuation could make it a very risky play as rising inflation causes investors to shun more speculative growth stocks.

It's not the right time to buy SentinelOne

SentinelOne is a rapidly growing company, but it's not a better investment than CrowdStrike or Palo Alto Networks yet. I wouldn't buy its stock unless it stabilizes its losses or its valuation cools off to more reasonable levels.

Leo Sun owns Palo Alto Networks. The Motley Fool owns and recommends CrowdStrike Holdings, Inc. and Palo Alto Networks. The Motley Fool has a disclosure policy.

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