Shares of SentinelOne (S +3.51%) slid 15.5% through 11 a.m. ET Friday after the cybersecurity company reported much bigger losses than Wall Street had anticipated in its first quarter of fiscal 2025.
Heading into the quarter, analysts forecast SentinelOne would lose only $0.05 per share on $181.1 million in sales. In fact, the company reported this morning that its losses were $0.23 per share, despite sales exceeding expectations at $186.4 million.
NYSE: S
Key Data Points
SentinelOne's first quarter
Despite the bad earnings number, SentinelOne had some positive news to report as well. Sales that exceeded expectations actually soared 40% year over year. Gross profit margins jumped 5 full percentage points to 73%, and operating profit margins weren't exactly "profitable," but their negativity was cut in half, to 43% -- so I guess that's good.
As an investor, what appeals to me most is SentinelOne's saying that it just reported its first quarter of positive free cash flow (FCF). Even if it isn't yet profitable as defined by generally accepted accounting principles (GAAP), it's at least now generating real cash profits: $41.1 million worth in just the first quarter, implying full-year FCF might be as high as $160 million.
Does this make SentinelOne a buy?
On a $5.2 billion market capitalization, this implies the stock could currently cost as little as 32 times annual FCF, which seems a good price if the company can keep growing revenue at 40% and increase FCF at a similar pace.
Other investors, however, might have been spooked by the company's forecast. Management said that second-quarter revenue will only be about $197 million, so better than the first quarter but slightly below Wall Street estimates.
Full-year guidance -- $808 million to $815 million -- similarly came in short of Street expectations, with SentinelOne also noting that its GAAP earnings will remain negative all year long.
In short, the FCF news gives investors at least some reason to want to buy SentinelOne today, but its increase might not be great enough to keep growth investors on board.
