Cybersecurity company SentinelOne (S -4.80%) may not receive as much attention as its peers. Despite building a cybersecurity platform around artificial intelligence (AI), its stock is down approximately 75% from its peak in late 2021, soon after the company's initial public offering (IPO).
That performance places SentinelOne's stock in an interesting position. Cybersecurity is a critical, rapidly growing industry, factors that may make its stock attractive in a bull market. Conversely, unlike peers such as CrowdStrike and Palo Alto Networks, it has never recovered from the 2022 bear market, raising questions about whether SentinelOne will ever bounce back.
Amid these contradictions, investors need to take a closer look at the stock to determine whether they can profit by buying on the dip.
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SentinelOne's place in the cybersecurity industry
As mentioned, SentinelOne stood out by building a cybersecurity platform from the ground up. This platform, called Singularity XDR, protects cloud workloads, endpoints, containers, and Internet-of-Things (IoT) devices. It detects, prevents, responds, and searches for threats through an AI-powered platform.
This mirrors its peer CrowdStrike as both companies have focused on endpoint protection. However, with companies often seeking to consolidate their cybersecurity needs, other companies compete in endpoint protection and other areas.
This, combined with the large number of cybersecurity companies, has made it a highly competitive industry, raising questions about whether SentinelOne can establish a meaningful competitive moat.
Amid the growing importance of the cloud and AI, demand for cybersecurity products that can protect these ecosystems has skyrocketed. Grand View Research forecasts a 13% compound annual growth rate (CAGR) for the cybersecurity industry through 2030. It estimates the industry's current size at $245 billion and forecasts that it will exceed $500 billion by 2030.
SentinelOne by the numbers
For now, SentinelOne only claims a small fraction of that business, though that factor has not hampered its growth. In the first quarter of its fiscal 2026 (ended April 30), revenue grew 23% to $229 million compared to year-ago levels.
Unfortunately, costs and expenses have grown nearly as rapidly as revenue, meaning its operating losses have widened. Additionally, the provision for income taxes in fiscal Q1 increased to $133 million, up from $1.5 million 12 months ago.
Consequently, net losses spiked to over $208 million, well above the $70 million loss in the first quarter of fiscal 2025. That rising loss stands in contrast to its fiscal 2025, when net losses fell by 15% to $288 million.
It may help somewhat that free cash flow for fiscal Q1 was $52 million, up from $41 million in the same period last year. Still, the rising net losses may alarm investors. While tech investors tend to be patient with unprofitable companies, seeing net losses rise when revenue increases can deter potential investors.
Moreover, peers such as CrowdStrike and Palo Alto have typically earned a profit in recent quarters, which does not make SentinelOne appear as promising in comparison.
Valuation comparisons may reflect that lack of confidence. SentinelOne's lack of profitability leaves it without a P/E ratio, though it sells at a price-to-sales (P/S) ratio of 7. That may seem cheap considering Palo Alto's sales multiple of 16 and CrowdStrike's 28 P/S ratio.
Nonetheless, with profitability unlikely to occur in the foreseeable future, it is worth asking whether that discounted sales multiple is sufficient to draw investors to SentinelOne stock.
Should you buy the dip in SentinelOne stock?
SentinelOne stock is not for risk-averse investors, although investors who can tolerate the risk may have a buy case. Indeed, the ongoing net losses may give prospective investors pause despite the much lower P/S ratio. Heavy competition within the cybersecurity industry may also cause concern.
However, investors should also note the continued revenue growth and rising free cash flow. The growing revenue should push its low sales multiple down further, which could attract more buyers. It also means SentinelOne may not need to dilute shares or turn to debt to pay its bills.
Regarding competitive concerns, SentinelOne's revenue growth is significantly above the 13% industry CAGR. This industry expansion should give the company more prospective customers, increasing the chances that SentinelOne will continue to grow despite competitive threats.
