After climbing more than 70% in the first four months after its IPO, SentinelOne (S +0.34%) is down roughly 80% from its November 2021 high. Like many other stocks, SentinelOne's plunge is largely due to broader economic conditions and not a change in the fundamental business. Given its current price levels and long-term potential, SentinelOne seems to be undervalued.
Here's why you should consider investing in SentinelOne stock before the end of 2022.
NYSE: S
Key Data Points
SentinelOne offers a unique approach to cybersecurity
SentinelOne is a cybersecurity company that uses artificial intelligence (AI) to automate the cyberattack detection process. Its Singularity Platform aims to instantly find attacks and proactively defend against them much faster, more accurately, and on a greater scale than humans can accomplish.
Unlike cybersecurity companies like CrowdStrike, SentinelOne isn't strictly cloud based. Instead, it uses a hybrid model that allows customers to choose between managing the service via cloud (hosted on Amazon Web Services) or as an on-premise virtual appliance. Regardless of which customers choose, SentinelOne's detection, prevention, and response are done locally and are not reliant on the cloud, shortening the time between infection, detection, and response.
Looking past profits
Like many younger growth companies, SentinelOne has yet to be profitable, deterring investors who might see this as a red flag in the current economic conditions. However, long-term investors should look past the company's lack of profits and toward other metrics that reflect its continued growth and potential.
In its Q3, the company added more than 600 customers, growing the total customer count by 55% year over year. Customers with annual recurring revenue (ARR) of more than $100,000 grew nearly 100% year over year to 827, and dollar-based net retention -- the amount customers spend with the company each year -- was 134%. In other words, customers are spending 34% more each year. This is a positive sign that spending the money necessary to bring in new customers is worthwhile.
Many competing cybersecurity businesses are already profitable, but SentinelOne's revenue is growing at almost twice the pace of its competitors. As such, there's little doubt in my mind that SentinelOne will reach profitability in the next few years (the CEO predicts 2025) and continue its hypergrowth for the foreseeable future.
Data BY YCharts.
Cybersecurity is an industry primed for growth
As we progress toward a digital-dominant world, cybersecurity is becoming indispensable, because data breaches and other cybercrimes can be detrimental to businesses, and some never recover. For one thing, they're expensive. The costs of cybercrime for even small businesses can be well into the six- to seven-figure range. In 2006, the average cost of a data breach in the U.S. was $3.6 million; in 2022, that cost went up to $9.44 million, according to IBM. According to Cybersecurity Ventures, Cybercrime costs are expected to grow by 15% year over year for the next few years, reaching $10.5 trillion -- up from $3 trillion in 2015.
Arguably more important than the money, though, is the effect that cybercrimes have on consumers and their attitude toward the affected company. It takes a while to build trust with consumers, but it takes just one slip-up to diminish that trust and possibly lose lifelong customers.
SentinelOne is just one of many players in the cybersecurity industry, but there's room for several as the pie gets bigger. There's still lots of work to be done in cybersecurity regarding automation, pricing, and other capabilities. As SentinelOne expands, it's in a good position to benefit from the lucrative $1.5 trillion to $2 trillion addressable market that's likely only around 10% penetrated at the moment.
