What happened
Week to date, shares of SentinelOne (S 1.70%) were up 13.5% as of 2:30 p.m. ET on Thursday, according to data provided by S&P Global Market Intelligence.
On Monday, news surfaced that the fast-growing cybersecurity provider could be exploring the possibility of a sale. According to the report from Reuters, SentinelOne has hired an investment bank, but it's also possible the talks will end without a sale.
So what
SentinelOne has been a stiff competitor against larger cybersecurity companies like CrowdStrike Holdings. Although revenue growth has slowed in the difficult operating environment, demand is still relatively strong, with revenue up 70% year over year in the last quarter.
However, growth has come at the expense of profits, which has sent the stock down 41% over the last year. SentinelOne could be looking at a sale to better focus on its growth strategy without having to please Wall Street's focus on near-term earnings performance. The company is not only competing against the likes of CrowdStrike but also the deep pockets of Microsoft, which offers its own endpoint-security solutions with Microsoft Defender.
Although margins are improving, SentinelOne still expects full-year adjusted operating margin to be negative between 29% to 25%.
Now what
Analysts at Needham see an acquisition by Microsoft, IBM, or Palo Alto Networks as possible but unlikely outcomes. A better possibility, if SentinelOne is acquired, is a buyout by a private equity firm.
It's also worth noting that SentinelOne stock trades at the lowest valuation among the cybersecurity leaders on a price-to-sales (P/S) basis. At the time of writing, SentinelOne trades at a P/S ratio of 9.6 compared to 14.1 for CrowdStrike and 11.4 for Palo Alto Networks.
