SentinelOne's (S +0.75%) stock market rally over the past six months came to a grinding halt on Dec. 4 following the release of the company's fiscal 2025 third-quarter results (for the three months ended Oct. 31), as investors overlooked the cybersecurity specialist's upgraded full-year guidance and focused on a weaker-than-expected bottom line that missed expectations by a whisker.
However, there was a lot to like about the company's latest quarterly report. Here's a closer look at SentinelOne's performance last quarter to help investors decide if they should consider buying the stock following its latest stock price dip.
NYSE: S
Key Data Points
SentinelOne is witnessing solid growth in the adoption of its cybersecurity platform
SentinelOne's fiscal Q3 revenue increased 28% year over year to $210.6 million, beating consensus expectations of $209.7 million. What's more, the company broke even on a non-GAAP (generally accepted accounting principles) basis last quarter, as compared to a loss of $0.03 per share in the year-ago period. However, analysts were expecting a profit of $0.01 per share. This miss of the consensus expectation was enough for investors to hit the panic button, and the stock price fell over 13% in a single session.
What the market did seem to notice was that SentinelOne increased its fiscal 2025 revenue guidance to $818 million from the earlier expectation of $815 million. That would translate into a year-over-year increase of 32%. The company's improved guidance can be attributed to the growing adoption of its cybersecurity solutions, with the integration of artificial intelligence (AI) tools playing a central role in helping it win a bigger share of customers' wallets.
This is evident from the healthy growth in SentinelOne's annualized recurring revenue (ARR) last quarter. This metric refers to the annualized revenue run rate of SentinelOne's subscription and consumption-based agreements at the end of a quarter. The company ended the quarter with $860 million in ARR, an increase of 29% from the prior-year period and higher than the revenue increase that it reported last quarter.
SentinelOne attributed this growth to an increase in customer spending. It added a record number of customers with an ARR of more than $100,000 in the previous quarter, witnessing 24% growth from the same quarter last year to 1,310. It also added that the number of customers with $1 million or more in ARR increased at a faster pace.
The increased customer spending is having a positive impact on SentinelOne's margin profile. The company ended the previous quarter with a non-GAAP gross margin of 80%, up from the year-ago period's reading of 79%. For the full year, SentinelOne expects its non-GAAP gross margin to improve by 150 basis points.
The combination of an improving margin profile and a strong revenue pipeline explains why analysts forecasted a significant improvement in its bottom-line performance from next year.
S EPS Estimates for Current Fiscal Year data by YCharts
Moreover, SentinelOne management points out that the company's AI-focused cybersecurity tools are rapidly gaining traction among customers. The company made its generative AI-powered security analyst -- known as Purple AI -- generally available to customers in April this year. SentinelOne claims that the early adopters of Purple AI have reported an impressive increase of 80% in threat detection and investigation, which is probably the reason why the attach rate of this product doubled on a quarter-over-quarter basis.
The attach rate refers to the units of a secondary product or service that is sold by a company along with a primary offering. The healthy adoption of Purple AI suggests that SentinelOne is able to successfully cross-sell its AI-focused offerings to its customer base, and that should bode well for both its revenue and earnings growth.
Is the stock worth buying right now?
As mentioned, SentinelOne is expected to achieve a small profit on a non-GAAP basis in the current fiscal year. It is worth noting that SentinelOne achieved an adjusted profit of $0.01 per share in the first nine months of fiscal 2025, as compared to a loss of $0.25 per share in the same period last year.
So, there is no denying that it is managing healthy bottom-line improvement. However, the stock trades at an expensive 140 times forward earnings, considering that it is gradually going to become profitable. But at the same time, SentinelOne's price-to-sales ratio of 10 isn't very expensive when we compare it to the U.S. technology sector's sales multiple of 8.4.
Growth investors, therefore, can consider using the dip in SentinelOne stock to buy it, considering its raised revenue guidance and improving margin profile. It is also worth noting that SentinelOne has a 12-month median price target of $30, as per 34 analysts covering the stock, which would be a 21% jump from current levels.
However, it could deliver stronger gains in the next year and in the long run, if its growth rate continues to pick up thanks to catalysts such as AI that could encourage customers to spend more money on its offerings.
