Up 45% Since June, Buy This Tech Stock Before It Soars, Following Its Beat-and-Raise Report

SentinelOne (S -2.88%) The stock has posted an impressive 45% gain since the start of June, which should come as a relief to shareholders. The cybersecurity specialist has endured a difficult start to 2024 and has fallen substantially in the first five months of the year.

Its recovery is remarkable given that investors hit the panic button following the release of the company’s fiscal first quarter 2025 results three months ago. The reason behind this sell-off was the reduction in guidance for the full year. However, savvy investors began buying SentinelOne shares following its selloff.

This proved to be a foreboding strategy. Action SentinelOne got a nice shot in the arm after a CrowdStrike The software update crashed a large number of global IT systems on July 19. Now, it looks like SentinelOne’s business could benefit from the CrowdStrike gaffe, as its latest results beat Wall Street expectations and the company raised its full-year guidance.

Let’s take a closer look at SentinelOne’s latest quarterly report and consider why the stock could offer more growth.

SentinelOne’s strong results indicate strong demand for its cybersecurity offerings

On August 27, SentinelOne released its results for the second quarter of fiscal 2025, which ended on July 31. The company’s revenue rose 33% year over year to $199 million, beating the consensus estimate of $197.3 million. Additionally, it posted an adjusted profit of $0.01 per share, from a loss of $0.08 per share in the same quarter last year. Analysts expected SentinelOne to break even.

These stronger-than-expected results can be attributed to an improving customer base as well as SentinelOne’s ability to generate higher spend from its existing customer base. This was evident from management’s comments in the last shareholder report:

Our customer growth in Q2 was broad-based for companies of all sizes and geographies. Our momentum with large enterprises remains strong as our customers with ARR of $100,000 or more grew 24% YoY to 1,233. Customers with more than $1 million in ARR grew even faster, setting another company record.

SentinelOne points out that ARR, or annual recurring revenue, measures its ability to acquire new subscription customers and also maintain or expand relationships with existing customers. Value refers to the annual rollover rate of subscription revenue and consumption and usage-based agreements in effect at the end of the period.

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

Although SentinelOne management says macroeconomic uncertainty still lingers, “the performance shortfalls of other offerings in the market are becoming visible to the public.” Management did not mention CrowdStrike by name, but addressed the “latest global IT outage,” describing it as “an avoidable incident that was born out of risk-prone software deployment practices and a product architecture fragile”.

So there is a possibility that SentinelOne will see an increase in demand for its products due to the CrowdStrike issues. And as it attracts more customers thanks to the missteps of others and earns a larger share of its existing customers’ cybersecurity spending, it could see further margin improvements. It’s worth noting that the company’s non-GAAP operating margin was negative 3% in fiscal Q2, compared to negative 22% in the year-ago period.

Additionally, its adjusted gross margin improved 3 percentage points year-over-year to 80% last quarter. So SentinelOne’s bottom line still has plenty of room for growth, which is precisely why analysts expect its earnings growth to pick up.

A solid bottom line increase could lead to higher stocks

We’ve already seen that SentinelOne posted an adjusted profit in the second quarter of fiscal 2025, compared to a loss in the same period last year. The company ended its fiscal 2024 with a loss of $0.28 per share, which was a massive improvement over the $0.70 loss per share it reported in fiscal 2023. It expect the company to go into the black this year and have two good years to come. of increasing the final results.

S EPS estimates for current fiscal year data by YCharts.

Additionally, analysts expect SentinelOne’s earnings to grow at a compound annual rate of 40% over the next five years. All of this indicates that this cybersecurity stock may be able to sustain its impressive growth not only 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 10x sales. That’s a small premium to the US tech sector’s average sales multiple of 8, and one it seems able to justify given its impressive growth.