SentinelOne (S 3.34%) looks like one of the best-positioned companies to take advantage of the recent global IT outage caused by rival cybersecurity provider CrowdStrike (CRWD 1.79%).
On Aug. 27, SentinelOne reported its fiscal 2025 second quarter results, showing a surge in revenue and a transition to profitability on an adjusted earnings basis. With the opportunities in front of the company, investors should be taking a serious look at its stock.
NYSE: S
Key Data Points
Strong revenue growth continues
In the fiscal quarter, which ended July 31, SentinelOne's revenue grew 33% to $198.9 million, beating its forecast of $197 million. The company made strong progress in international markets, where revenue grew by 36%.
Its annual recurring revenue (ARR) -- the annualized value of its customer subscription and consumption-based contracts -- jumped by 32% to $806 million. It added $44 million in new ARR in the quarter. The number of customers providing ARR of $100,000 or more was up by 24% to 1,233 as of the end of the quarter.
SentinelOne said new products such as Data, Purple AI, and Cloud were gaining traction. On the earnings call, management noted particular strength in Purple AI, saying it saw a "double-digit attach rate for PurpleAl across all eligible endpoints sold in the second quarter." It highlighted this new offering, saying it leads to 80% faster threat hunting and investigations.
Gross margin showed strong improvement, coming in at 75% compared to 70% a year earlier. Its adjusted gross margin, which excludes stock-based compensation expenses, rose from 77% to 80%.
On the profitability front, SentinelOne posted an adjusted profit of $3.5 million compared to a loss of $24.6 million in the prior-year period. Operating cash flow came in at $2.3 million, while free cash flow was negative $5.5 million. The company ended the quarter with more than $1.1 billion in net cash and short- and long-term investments on its books.
Looking ahead, management forecast that fiscal Q3 revenue would be approximately $209.5 million, which would amount to about 27.5% growth. It is looking for an adjusted gross margin of 79%.
For its fiscal year, SentinelOne is projecting revenue will grow by 31% to around $815 million. That's up from its prior outlook for revenue of $808 million to $815 million. It guided for an adjusted gross margin of 79%, compared to its prior outlook of between 78% and 79%.
Management indicated that the company was ready to take advantage of the fallout from CrowdStrike's IT outage, and said that interest in its platform has risen as a result of it. In its shareholder letter, it wrote: "Some of the largest enterprises in the world are now evaluating and appreciating the Singularity platform's breadth and superiority relative to the competitive offerings -- and, they are positively surprised."
Image source: Getty Images
Is this an opportunity to buy the stock?
Shares of SentinelOne have rallied in the wake of CrowdStrike's misstep, but they still trade at a pretty large discount compared to rivals such as the aforementioned CrowdStrike and Palo Alto Networks (PANW 0.15%) on a forward price-to-sale (P/S) basis.
CRWD PS Ratio (Forward 1y) data by YCharts.
Part of that gap can be attributed to SentinelOne's nascent profitability, but the company appears to have reached an inflection point and should see strong earnings growth in the years ahead. At the same time, it is much smaller than both CrowdStrike and Palo Alto. It wouldn't take a lot of incremental business gains for its wins to have a big impact on the company's financials.
SentinelOne looks like the company best positioned to benefit from CrowdStrike's outage. At the same time, its stock is attractively priced relative to peers, and its top line was showing strong growth even before the outage. As such, I would take advantage of this opportunity, and be a buyer of this up-and-coming name in cybersecurity.
