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Overlooked growth stocks could be among the biggest gainers in the current bull market. Many well-known companies are enjoying valuation spikes as they recover from the 2022 market correction. Some promising companies are lagging behind their peers, and one cybersecurity stock in particular has attractive upside potential.
Little-known cybersecurity stocks
sentinel one (S 3.30%) Provides endpoint protection software and services to enterprise customers. The company’s products are used to monitor and eliminate malicious software threats to devices and servers connected to an organization’s network. The number of cyber-attacks is increasing over time, and endpoints are one of the most common entry points into corporate networks.
There’s serious demand for endpoint security services, and it’s easy to see why that demand is good news for SentinelOne, but capitalizing on that demand is another story. This part of the cybersecurity industry is highly competitive, with large and capable providers such as: cloud strike, microsoft, palo alto networksand fortinet. Crowded spaces create many mouths, even if there is a large and rapidly expanding pie to divide among the crowd.
SentinelOne is trying to differentiate itself by leaning fully into artificial intelligence (AI). Its platform features automated monitoring and remediation capabilities. This increases the effectiveness of threat detection and also reduces the burden on human employees to manage the process. It’s naive to doubt your competitors’ AI capabilities, but building automation into your platform is by no means a unique value proposition. Still, we noticed that SentinelOne received high praise from: gartner and its customers. The company has clearly developed a high quality product.
SentinelOne also aims to create a competitive advantage by forming distribution partnerships with managed security service providers (MSSPs). MSSPs allow businesses to outsource their cybersecurity functions. This tends to be valuable for small businesses or those in relatively low-tech industries that lack the expertise to handle security in-house.
While there are pros and cons to an affiliate sales model rather than a direct sales model, maintaining an MSSP network will help SentinelOne maintain its footing rather than being swept away by larger competitors with more resources. Masu. Analysts speculate that SentinelOne’s economic moat is weaker than the likes of his CrowdStrike and Palo Alto Networks, making it important for it to pursue alternative strategies to survive.
Good financial results that cannot be ignored
Financial results show that these strategic moves are paying off. SentinelOne reported 42% year-over-year revenue growth in its most recent quarter, supported by 115% net dollar retention. This net dollar retention figure means that a customer who was active a year ago is now generating 15% more revenue than he did a year ago. This shows that we have a very low percentage of customers discontinuing our services and are actively growing our relationship with SentinelOne. It is evidence of high satisfaction rates, strong products, effective customer service and sales capabilities. Considering the quality of competition, the combination of customer retention and new customer bookings is encouraging. The company reported a 24% year-over-year increase in total customers as of the end of its most recent quarter.
SentinelOne achieves this revenue increase without a proportionate increase in expenses, another important consideration. Its most recent quarterly net loss was $70 million, compared with nearly $100 million last year. The company’s cash burn rate is actually much lower than its accounting losses, thanks to non-cash expenses of about $300 million per year.
SentinelOne’s free cash outflow for the most recent quarter was $26 million, down from $65 million a year ago. Obviously, burn volumes are decreasing and the company is nearing break-even. If we can support our operations with net internal cash flow, we are able to reduce significant risks to our shareholders, and the situation is within our control. SentinelOne has over $1 billion in short-term liquid assets, so burn rate is not a concern as the company moves towards positive cash flow.
discount evaluation
Sentinel One stock is down more than 65% from its all-time high from late 2021. Cybersecurity stocks and growth stocks in general suffered significant declines throughout 2022. Stocks have soared due to low interest rates and fiscal stimulus related to the COVID-19 pandemic. Valuation of growth stocks. This trend quickly reversed when the Federal Reserve raised interest rates, which fueled fears of an economic contraction and sent stock prices crashing.
Most of the cybersecurity industry has since recovered, as investors hope for a boost to the economy ahead of another Fed rate cut. SentinelOne has lagged most of its peers in this recovery, resulting in a discounted valuation. With a price-to-sales ratio of less than 15, it is significantly cheaper than CrowdStrike or Palo Alto.
Investors cannot ignore the competitive risks and disadvantages of SentinelOne’s small size. However, SentinelOne’s recent booking and customer retention results suggest that SentinelOne holds a unique position in a growing industry. Although this stock’s risk profile is relatively high compared to its peers, its valuation creates more opportunities for buyers. This stock should have the potential to rise further in the current bull market.
Ryan Downie has a position at Microsoft. The Motley Fool has positions in and recommends CrowdStrike, Fortinet, Microsoft, and Palo Alto Networks. The Motley Fool endorses his Gartner and recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
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