SentinelOne stock is down 41% from its 52-week high. Time to buy?

Actions of a cyber safety specialist SentinelOne (S 2.06%) have been beneath stress after a combined first-quarter earnings report. Though the corporate beat expectations, administration’s slight revision of steering appears to have disillusioned the market. The inventory is now down 41% from its 52-week excessive.

Regardless of the volatility, traders mustn’t lose sight of the corporate’s constructive long-term outlook. There are a number of causes to stay bullish on SentinelOne, which continues to ship industry-leading development and is on observe to realize profitability.

Is that sufficient to make SentinelOne inventory a very good addition to your portfolio now? Here is what that you must know.

Synthetic intelligence options are driving industry-leading development

SentinelOne is acknowledged as a pacesetter in superior detection and response (XDR). This area of cybersecurity offers with the gathering and evaluation of information inside a company’s IT ecosystem to proactively defend in opposition to potential threats.

The corporate stands out for its give attention to synthetic intelligence (AI) automation, which has been the main target of its Singularity platform since earlier than the corporate’s 2021 preliminary public providing.

Picture supply: Getty Pictures.

Whereas rivals have rushed so as to add AI options lately, SentinelOne is a pioneer within the area and claims to have one of many {industry}’s most superior AI-powered safety platforms. Current improvements embrace “purple synthetic intelligence,” which incorporates generative synthetic intelligence, which administration sees as a requirement driver.

This momentum translated into robust development, permitting SentinelOne to seize market share from bigger rivals equivalent to Palo Alto Networks or CrowdStrike. Within the first quarter of fiscal 12 months 2025 (ended April 30, 2024), SentinelOne posted income development of 39.7% year-over-year, outpacing the {industry}.

Glorious momentum coupled with efforts to regulate prices is clear as complete prices declined as a proportion of income. Non-GAAP working margin fell to damaging 6% this quarter from damaging 38% in 1Q24.

Notably, Q1 adjusted earnings per share (EPS) of $0.00 was above the Wall Road common estimate of -$0.05. Much more impressively, SentinelOne generated $33 million in free money stream within the first quarter, marking the corporate’s first constructive quarter in its historical past.

S Income (quarterly development y/y) knowledge from YCharts

SentinelOne Income Forecast

Total, the headline numbers recommend a very good begin to the 12 months with the corporate making progress in the direction of worthwhile development.

Alternatively, an up to date full-year income forecast of $808 million to $815 million, down from an earlier forecast of $812 million to $818 million, doubtless explains the weak share worth buying and selling. In a letter to shareholders, administration cited a “dynamic macroeconomic atmosphere” affecting company IT budgets, leading to little impression on gross sales cadence.

Any time an organization withdraws steering, it is comprehensible {that a} tone of warning would possibly come up. On the identical time, it is vital to acknowledge that the present forecast represents a stable 30% or so enhance from 2024.

The general image, outlined by increased margins and improved money flows, remained unchanged. In accordance with consensus estimates, SentinelOne is predicted to publish constructive adjusted earnings per share of $0.04 this 12 months, reversing a lack of $0.28 in fiscal 2024. Momentum will enhance with EPS forecast of $0.23 by 2026 and $0.44 by 2027.

So, whereas a inventory valuation of practically 450 instances present 12 months earnings could come as a shock to some traders, I consider the premium is justified given the earnings path. The P/E ratio has room to normalize because the enterprise grows.

Even looking forward to subsequent 12 months, the estimated one-year P/E ratio of 78 is already consistent with CrowdStrike’s. There’s an argument that SentinelOne deserves an excellent greater premium given its stronger development and AI-powered XRD cybersecurity management. The upside is that income can exceed expectations. Administration’s means to make use of strategic leverage to help profitability must be rewarded by the market.

S PE ratio knowledge (ahead 1 12 months) by YCharts

Must you spend money on SentinelOne now?

Cybersecurity is extra vital than ever, and SentinelOne stays well-positioned to profit from corporations investing of their digital infrastructure. Conserving the inventory within the speculative class, I see a very good probability that SentinelOne inventory will commerce increased by this time subsequent 12 months.