Cybersecurity firm SentinelOne (S -0.24%) has seen strong business growth amid a crowded field. Competitors include longtime industry veterans, such as McAfee and Kaspersky Lab, and newer entrants, such as Crowdstrike.
Its success helped SentinelOne stock jump 21% in its debut as a public company last June, which made it the highest-valued cybersecurity IPO in history at the time. But after reaching a 52-week high of $78.53 in November, shares traded around $35 at the time of this writing.
The substantial stock price drop was caused by a combination of factors. Its post-IPO lockup period for insiders expired in December. This was followed by the tech stock rout in recent weeks.
Does SentinelOne's price decline signal a buying opportunity? Let's dig into the company to shed light on the answer and confirm that it offers a solid long-term investment.
SentinelOne's key to success
What sets SentinelOne apart from its myriad competitors is a platform built from the ground up to be managed by artificial intelligence (AI). Most competing solutions require some degree of human oversight or intervention, but SentinelOne's platform is completely autonomous.
By relying on AI, SentinelOne can identify and stop cyberattacks in real-time. This is important because cybercriminals have increased in sophistication to the point where simply detecting an attack is difficult. The longer it takes to catch an attack in progress, the harder it is to remedy the situation. An IBM study revealed businesses required an average of 207 days just to identify the presence of a cyber threat and another 73 days to contain it.
SentinelOne has won industry recognition for its AI-powered approach. The company captured the 2021 best innovator award from independent testing firm SE Lab and was listed as one of the leaders in its field last year by Gartner.
SentinelOne's comprehensive protection, ease of use, and speed make it a popular choice among businesses. The company grew from around 4,700 customers last April to over 6,000 by the end of October.
In its fiscal third quarter ended October 31, SentinelOne's customer count grew by over 75% year over year. Its customers include name brands such as Samsung and Electronic Arts.
With its rapid customer expansion, SentinelOne has experienced equally impressive revenue growth. In just the first three quarters of fiscal year 2022, the company's revenue of $139.2 million already exceeded the $93.1 million the company brought in for the entire 2021 fiscal year.
SentinelOne's growth is poised to continue. The company expects triple-digit year-over-year revenue growth in the fourth quarter and forecasts revenue of at least $199 million for the full year.
To continue fueling its growth, SentinelOne is expanding its international sales team. While the company generated 67% of its Q3 revenue in the U.S., its share of international income jumped 159% year over year in the quarter.
In addition to excellent revenue growth, SentinelOne's balance sheet is very strong. The company had $2 billion in total assets with $1.7 billion of that in cash and equivalents at the end of Q3. SentinelOne's total liabilities were only $302 million with zero long-term debt.
Moreover, SentinelOne's gross margin is increasing as it expands and scales its operations. Its Q3 generally accepted accounting principles (GAAP) gross margin was 64% compared to 58% in the previous year, representing the third consecutive quarter of gross margin growth.
To buy or not to buy SentinelOne?
Even with its many positives, SentinelOne isn't perfect. The company is not profitable, suffering a net loss of $68.6 million in Q3, more than double the prior year's net loss of $30.2 million. But many tech companies operate at a loss for years while pursuing growth, so SentinelOne's widening net loss is understandable at this point.
Besides, the company's investments in its business have proven successful at capturing its share of the market, as its strong growth illustrates. That growth will continue given market demand for cybersecurity services, which is considered a business necessity due to the threat posed by cyberattacks.
Last year, cybersecurity failure was among the top 10 global threats listed by the World Economic Forum. Also, increased digital adoption as a result of the coronavirus pandemic, along with the advent of technologies such as the metaverse, feeds into the global cybersecurity industry's growth, which is forecasted to rise from $217.9 billion last year to $345.4 billion in 2026.
Given the success of its platform, years of industry growth serving as a tailwind, and its mountain of cash, SentinelOne is well-positioned to continue its track record of success over the long term. These factors, combined with a stock price reaching a new 52-week low of nearly $34, make now a good time to buy SentinelOne.