How High Will SentinelOne Stock Go?

SentinelOne (NYSE:S) is an unusual case in the market’s current AI boom. SentinelOne is among the leading cybersecurity companies leveraging AI to detect and respond to threats. While other AI stocks have risen at incredible rates this year, though, S shares have fallen off by nearly 13%.

Most of this drop is the result of revenue growth falling from triple-digit levels into a more reasonable and sustainable range. The question now is whether SentinelOne is primed for a comeback and how high the stock could go if it does begin to advance again?

S Has Massive Revenue Growth But Lots of Losses

One of SentinelOne’s outstanding features is its revenue growth over the last several years. In 2021, for instance, the company generated about $205 million. For the 12 months ending on July 31st, total revenue stood at $723 million. Q3 also saw the lowest year-over-year revenue growth rate in the company’s public history, and even that record low resulted in a 33.6% increase over the year-ago quarter’s results.

Importantly for a company that sells its services on a recurring basis, SentinelOne’s annualized recurring revenue rose by 29% in Q3. This recurring revenue now totals just shy of $860 million annually, well over the trailing 12-month revenue the company reported.

The company also increased the number of customers that contribute $100,000 or more in ARR by about 24%. This suggests that SentinelOne still has room for extra revenue growth left in it, even if the rates won’t be as high as investors got used to a couple of years ago.

One problem SentinelOne has had, though, is that these massive revenue growth rates haven’t translated into profitability yet. As of the end of Q3, the company’s trailing 12-month losses totaled about $281 million.

While losses aren’t as steep as they were in 2022 and 2023, the company is still losing about $70 million per quarter. Even on an EBITDA basis, SentinelOne has lost over $50 million in each of the last four reported quarters.

At the moment, there’s no expectation that SentinelOne will report positive earnings per share anytime soon. Analyst earnings forecasts project that the company will continue losing money into at least 2027. For the foreseeable future, therefore, SentinelOne’s stock price will likely depend on its ability to keep turning in very strong revenue growth.

The good news for SentinelOne is that there’s no immediate pressure to deliver profits. The company has no long-term debt, and its combined cash, cash equivalents and short-term investments total about $660 million. These factors, combined with a current ratio of 1.6x, suggest that SentinelOne is in good enough financial health to keep focusing on growth without having to immediately deliver net earnings.

How High Will SentinelOne Stock Go?

At the moment, the median 12-month target price for SentinelOne is $30 per share, suggesting a roughly 25% upside from the last closing price of $23.91. The range of forecasts, though, runs from $25 to $35 per share.

SentinelOne enjoys a roster of analysts’ ratings that all project varying degrees of upside for the stock.

If S’s real performance falls within this forecast range, investors can expect returns of anywhere from 5% to 46%.

Additionally, S has no standing Sell ratings, further establishing Wall Street’s view that the stock has room left to rise.

SentinelOne Still Trades at a Premium

Surprisingly, SentinelOne shares don’t look cheap, even after falling off quite a bit this year.

S shares trade at about 10 times sales, a ratio that could come down if SentinelOne maintains its high revenue growth rates while prices remain depressed.

The company also trades at 4.7x book value, which suggests that it’s overvalued for a business that’s still probably a good way out from delivering actual earnings.

Where Does S Go From Here?

On the whole, SentinelOne looks like it could be ready to rebound. The company has kept delivering high levels of revenue growth, and the opportunity that exists in providing AI cybersecurity services is immense.

Through 2030, industry experts expect the market for AI in cybersecurity to maintain a compounded annual growth rate of almost 25%. As a market leader, SentinelOne is in a good position to ride the growth wave through the rest of this decade.

One major problem that it’s important for investors to be aware of, however, is SentinelOne’s habit of being extremely generous with its stock-based compensation. In Q3 alone, for instance, the company reported over $70 million in stock-based compensation expenses.

This contributed to a 6.8% increase in the number of outstanding shares compared to the same quarter a year ago. While this wouldn’t be so troubling as a one-off event, the number of outstanding shares has been rising at a similar rate since early 2023.

Even with the effect of diluted shares factored in, though, SentinelOne appears to be primed for a comeback. The company’s fast-growing revenues, solid financial position and ability to capitalize on demand for AI in cybersecurity all put it in a decent position to succeed.

SentinelOne also crossed the threshold of generating positive free cash flow for the first time last quarter, a development that could give investors cause for optimism despite the fact that profitability is still distant. The question, though, is how high S shares could go in the foreseeable future. If the company can keep its revenue growth rates up, it seems reasonable to suppose that share prices could move up in tandem with them.

SentinelOne’s forward revenue growth rate is currently estimated at around 35%. Leaving some room for error, the range of $30-32 seems like a reasonable estimate. This is especially true if interest rates drop as expected next year, which would likely make growth stocks like SentinelOne more attractive. Investors should, however, be aware of the possibility that S could undershoot this range if its revenue growth rates keep dropping, especially in light of the stock’s already high valuation.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.