Why SentinelOne Stock Jumped This Week

What happened

Week to date, shares of SentinelOne (S -2.97%) were up 13.5% as of 2:30 p.m. ET on Thursday, according to data provided by S&P Global Market Intelligence. 

On Monday, news surfaced that the fast-growing cybersecurity provider could be exploring the possibility of a sale. According to the report from Reuters, SentinelOne has hired an investment bank, but it’s also possible the talks will end without a sale. 

So what

SentinelOne has been a stiff competitor against larger cybersecurity companies like CrowdStrike Holdings. Although revenue growth has slowed in the difficult operating environment, demand is still relatively strong, with revenue up 70% year over year in the last quarter. 

However, growth has come at the expense of profits, which has sent the stock down 41% over the last year. SentinelOne could be looking at a sale to better focus on its growth strategy without having to please Wall Street’s focus on near-term earnings performance. The company is not only competing against the likes of CrowdStrike but also the deep pockets of Microsoft, which offers its own endpoint-security solutions with Microsoft Defender. 

Although margins are improving, SentinelOne still expects full-year adjusted operating margin to be negative between 29% to 25%. 

Now what

Analysts at Needham see an acquisition by Microsoft, IBM, or Palo Alto Networks as possible but unlikely outcomes. A better possibility, if SentinelOne is acquired, is a buyout by a private equity firm.

It’s also worth noting that SentinelOne stock trades at the lowest valuation among the cybersecurity leaders on a price-to-sales (P/S) basis. At the time of writing, SentinelOne trades at a P/S ratio of 9.6 compared to 14.1 for CrowdStrike and 11.4 for Palo Alto Networks. 

John Ballard has positions in SentinelOne. The Motley Fool has positions in and recommends CrowdStrike, Microsoft, and Palo Alto Networks. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.

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