Companies that rely on consumer spending have suffered this year, because high inflation and rising interest rates have constrained household finances. As a result, the financial growth of such organizations has slowed materially in 2022.
But here's a tip: Focus on companies that instead sell their services to other businesses, because many of them are outperforming, especially those that operate in increasingly essential industries like cybersecurity. SentinelOne (S -2.09%) is a great example -- it uses artificial intelligence (AI) to deliver advanced protection, and high-spending customers are flocking to use it, which is sending its revenue soaring.
One Wall Street investment firm even thinks SentinelOne stock could more than double over the next 12 to 18 months from where it trades today. Here's why investors might want to buy in now.
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Cybersecurity is becoming critical
People who regularly track the news have probably noticed the growing frequency of data breaches, ransomware attacks, and malicious behavior online over the last few years. Companies that fall victim to these challenges face more than just financial losses; the trust they've built with customers is often shattered, leaving a significant reputational dent that is difficult to repair.
According to a survey conducted by global consulting firm PwC this year, corporate leaders consider cyber threats to be the greatest risk to their revenue. That's a big wake-up call, and it's being met with a stern response. A similar survey conducted by Morgan Stanley highlighted that cybersecurity is the last expense companies would be willing to cut, even if a recession hits.
Organizations (particularly large ones) are flocking to providers of advanced cybersecurity tools like SentinelOne. In fact, the number of its customers spending $100,000 or more each year doubled in the most recent quarter to 827.
SentinelOne takes a bolder approach than some of its competitors, in that it relies heavily on the abilities of its artificial intelligence and machine learning models to slash incident response times, removing the need for human intervention. It also delivers advanced, proactive tools like Hologram, which serves as a decoy inside customers' networks to draw out lurking threats and neutralize them.
It takes visibility to new heights too, which is beneficial for large companies. SentinelOne's Singularity XDR platform allows teams to collaborate across departments from one single dashboard, which streamlines workflows and ensures clear communication, ultimately leading to more effective results.
SentinelOne has become a financial powerhouse
SentinelOne has at least doubled its sales in every single year since fiscal 2020, and it's on track to do so yet again in fiscal 2023. In fact, the company had originally told investors it expected to generate up to $370 million in revenue this year, but after a series of strong quarterly results, it has drastically increased that forecast to $420 million.
Annual recurring revenue also jumped 106% year over year to $487 million in the third quarter, indicating that its run of growth is likely to power on, at least in the near term.
But despite the company's strength, its stock price has declined 80% from its all-time high. Why? Because it continues to sacrifice profitability in order to generate its robust growth. Investors perceive this as a risky strategy while the economic situation is so uncertain. In the first nine months of fiscal 2023, for example, SentinelOne reported a sizable net loss of $285 million on $296 million of revenue.
This story isn't as black and white as the company's current profit and loss, though. SentinelOne's net revenue retention rate came in at 134% in the fiscal third quarter, well above its 120% target. That means existing customers are spending a whopping 34% more money with the company in each passing year. Therefore, it makes perfect sense for SentinelOne to continue investing aggressively in bringing those customers in the door, because they're growing significantly more valuable over time.
That's a long-term opportunity for investors who buy the stock now, while it's so beaten down.
Wall Street is bullish on SentinelOne
The Wall Street Journal tracks 21 analysts who cover SentinelOne stock, and not a single one recommends selling. In fact, 14 of them have given it the highest-possible buy rating, with one in the overweight (bullish) camp, and the rest holding a neutral stance.
But one investment firm in particular -- JMP Securities -- predicts major upside in SentinelOne stock over the next 12 to 18 months. Its price target is $36 per share, representing a 136% gain from where it trades as of this writing.
The need for advanced cybersecurity isn't going to subside anytime soon, so given SentinelOne's rapid growth, and with Wall Street in its corner, investors might want to consider building a position ahead of the new year.
