Modern businesses are now so digital that hackers and other malicious actors are potentially the greatest threats these companies face. According to IBM, a breach can cause $4.45 million in damages, 15% more than just three years ago.
Today's cybersecurity market is valued at roughly $222 billion and could grow by 12% annually through 2030. It's a highly competitive field, but companies like CrowdStrike (CRWD +2.62%) and SentinelOne (S +2.46%) are emerging as rising stars with cutting-edge products.
Their rapid revenue gains in the quickly expanding broader security field make both stocks great long-term ideas for growth-oriented investors. But is one better than the other?
I compared the two stocks and here is what I found.
Both feature cutting-edge products
Both CrowdStrike and SentinelOne started in endpoint security. An endpoint is a device that's connected to a network. Protection is critical because a compromised endpoint could infect the entire network. While traditional antivirus software has a list of known threats and screens for those threats, it creates potential blindspots to something it's never seen before.
That's where CrowdStrike and SentinelOne both shine. They utilize their respective proprietary platforms to identify suspicious and potential threats and can quickly act to address them before they cause damage -- even if they've never encountered them before.
NASDAQ: CRWD
Key Data Points
CrowdStrike sells its Falcon platform, which has different product modules depending on what customers want. Its Threat Graph creates a living network with a feedback loop, meaning the entire network improves every time a single threat is detected somewhere on it. A threat blocked on a computer in New York will be caught on devices in Florida, California, or anywhere else on the Threat Graph.
SentinelOne advertises itself as the first autonomous platform; its Singularity platform leverages artificial intelligence (AI) to detect and address threats automatically. It maps out everything a device does and looks for anything out of place in real time.
NYSE: S
Key Data Points
The critical takeaway here is that both CrowdStrike and SentinelOne perform at a very high level. Both companies have received leadership designations from third-party technology consultants like Gartner.
Both also do business with some of the world's largest corporations, including those in the Fortune 10. In other words, their products both perform well enough that giving one a clear advantage over the other is difficult. It helps explain why both businesses are growing so fast -- they're eating share from outdated software vendors.
CrowdStrike has a clear financial advantage
The financials are where CrowdStrike jumps out to a lead. Simply put, CrowdStrike is a highly profitable business today, and SentinelOne isn't. CrowdStrike is approaching $3 billion in annual revenue, converting $864 million to free cash flow, or 30%. The company isn't done growing, either. Analysts believe revenue will grow 36% this fiscal year.
CRWD Free Cash Flow data by YCharts
SentinelOne's financials aren't as pretty yet, but there is an explanation. SentinelOne seems a bit earlier in its growth journey. Revenue growth is higher but growing from a much smaller number. The company only makes a fraction of CrowdStrike's sales, which are just starting to outrun expenses. You can see that free cash flow over the past year is negative but trending up.
S Free Cash Flow data by YCharts
The signs point to SentinelOne eventually turning profitable, and the company has a ton of cash on its balance sheet ($797 million) and no debt, so investors don't have to worry about SentinelOne running out of money. But between the two, CrowdStrike wins easily here.
Which is the better stock?
Wall Street is rightfully recognizing CrowdStrike's superior financials. Investors are paying twice as much for CrowdStrike shares on a price-to-sales basis:
CRWD PS Ratio (Forward) data by YCharts
The question is whether investors should pay for CrowdStrike's profits today or play the long game and buy SentinelOne at a lower valuation. Personally, SentinelOne's improving financials and plentiful cash balance alleviate the concerns that the business isn't yet profitable. Things look promising on that front. Additionally, the market may boost SentinelOne's valuation as profits seem more imminent.
Ultimately, it's hard to call a decisive winner here. However, CrowdStrike is the safer investment today. It's bigger and already sporting fantastic cash flows. CrowdStrike's earnings should snowball as revenue keeps growing over the coming years and could provide market-beating returns for a long time.
