Should you buy SentinelOne stock?
Since July 18th, cyber security stock, $SentinelOne, Inc(S)$ has climbed 13% but those gains have little to do with business results. Instead, SentinelOne stock has soared after rival, $CrowdStrike Holdings, Inc.(CRWD)$ caused the global outage that disrupted millions of people. The question is whether SentinelOne can hold on to those gains at the latest price.
Financials
Market cap: $7.9 billion.
Cash and investments: $1.1 billion
Enterprise Value: $6.8 billion
TTM
Revenue TTM: $674 million
However, the company is not yet profitable.
Net income TTM: - $300 million
FCF TTM: $0
Stock based compensation TTM: $220 million
SentinelOne vs CrowdStrike
Revenue: 47% vs 36%
Revenue Multiple: 10x vs18x
FCF Margin: 18% vs 35%
Positives
SentinelOne is delivering excellent growth sales more than doubled in 2021, 2022 and 2023. According to Bank of America, SentinalOne and CrowdStrike are the only two high-end players in endpoint security. CrowdStrike is clearly larger and more popular among big enterprise with nearly 5x recurring revenue but SentinelOne is growing faster fiscal 2024. Large businesses may want to diversify away from CrowdStrike in response to the outage and SentinelOne would be an obvious choice. The software is highly rated and more big clients are coming on board. Management clearly thinks it's got a good chance of taking market share. In an interview with CRN, CEO Toma wine Garten criticized CrowdStrike saying that outage was a product of bad design and bad architecture not just an honest mistake. Another data point worth considering is $Alphabet(GOOG)$ recent takeover bid for Wiz which valued the company at more than 60x of 2023 revenue. Wiz at one point wanted to buy SentinelOne so perhaps SentinelOne isn't as expensive as it looks on paper.
Risks
Despite the positives, SentinelOne shares have performed very poorly since its IPO. Investors have grown suspicious of unprofitable growth stocks. High stock based compensation is another hurdle to overcome. However, if SentinelOne takes market share from CrowdStrike and continues to put up strong free cash flow, investors are going to start warming up to the stock.
However, these are my personal opinions not Financial advice and I hold no position in SentinelOne.
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