Up 45% Since June, Buy This Tech Stock Before It Skyrockets on Beat and Raise Report

SentinelOne (NYSE:S) shares have posted impressive gains of 45% since the beginning of June, which should come as a relief to shareholders. The cybersecurity specialist has had a difficult start to 2024 and was significantly down in the first five months of the year.

Its recovery is remarkable, considering investors hit the panic button after the company released its fiscal first-quarter 2025 earnings results three months ago. The sell-off was prompted by a downgrade of its full-year guidance. But savvy investors have been buying SentinelOne stock since the sell-off.

It turned out to be a prescient strategy. SentinelOne shares received a nice boost after CrowdStrike The software update caused multiple global IT systems to crash on July 19. Now, it looks like SentinelOne’s business may be benefiting from CrowdStrike’s mistake, as its latest results beat Wall Street expectations and the company raised its full-year outlook.

Let’s take a closer look at SentinelOne’s latest quarterly report and consider why the company’s stock could continue to rise.

SentinelOne’s solid results indicate strong demand for its cybersecurity offering

On August 27, SentinelOne reported its second-quarter fiscal 2025 results, which ended July 31. The company’s revenue grew 33% year over year to $199 million, beating the consensus estimate of $197.3 million. Additionally, adjusted earnings came in at $0.01 per share, compared with a loss of $0.08 per share in the same quarter last year. Analysts had expected SentinelOne to break even.

These stronger than expected results can be attributed to the improved customer base, as well as SentinelOne’s ability to increase spending from its existing customer base. This was evident in management’s comments in its latest shareholder report:

SentinelOne points out that its ARR, or annual recurring revenue, measures its ability to acquire new subscription customers, as well as retain or grow relationships with existing customers. This metric refers to the annual rate of revenue from subscription and consumption contracts and usage-based contracts in effect at the end of the period.

So SentinelOne’s 32% increase in second-quarter ARR to $806 million indicates that its future revenue is improving. As a result, the company set its full-year revenue guidance at $815 million. In May, it issued fiscal 2025 revenue guidance in the range of $808 million to $815 million, citing macroeconomic challenges.

The story continues

While SentinelOne management says macroeconomic uncertainty persists, “the performance shortcomings of other market offerings are becoming public.” Management did not mention CrowdStrike by name, but referred to “the latest global IT outage,” describing it as “a preventable incident that was born out of risk-prone software deployment practices and a fragile product architecture.”

So there’s a chance SentinelOne will see increased demand for its products thanks to CrowdStrike’s problems. And as it attracts more customers from the mistakes of others and captures a larger share of its existing customers’ cybersecurity spend, it could see further margin improvements. Of note, the company’s non-GAAP operating margin was negative 3% in the fiscal second quarter, compared to negative 22% in the same period last year.

In addition, adjusted gross margin improved 3 percentage points year over year to 80% in the latest quarter. So SentinelOne’s net income still has plenty of room to grow, which is precisely why analysts expect earnings growth to skyrocket.

Solid net profit growth could lead to further share price gains

We’ve already seen SentinelOne report an adjusted profit in its fiscal 2025 Q2, compared to a loss in the same period last year. The company ended fiscal 2024 with a loss of $0.28 per share, which was a huge improvement from the loss of $0.70 per share it posted in fiscal 2023. The company is expected to break even this year and then post two solid years of net income growth.

What’s more, analysts expect SentinelOne’s earnings to grow at a compound annual rate of 40% over the next five years. All of this suggests that the cybersecurity stock could sustain its impressive run not just in the short term but also in the long term. That’s why it might be a good idea to buy SentinelOne now, while it’s trading at 10 times sales. That’s a small premium to the U.S. tech sector’s average sales multiple of 8, which the company seems able to justify thanks to its impressive growth.

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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has a position in and recommends CrowdStrike. The Motley Fool has a disclosure policy.

Up 45% since June, Buy This Tech Stock Before It Skyrockets on Beat-and-Raise Report Originally Posted by The Motley Fool