SentinelOne stock forms a golden cross ahead of Aug 27 earnings

SentinelOne (NASDAQ: S) stock price has underperformed its peers in the cybersecurity industry as concerns about its growth continued. It has dropped by 12.5% in 2024, while Palo Alto Networks, Fortinet, and Check Point Software have soared by over 20%. Even the embattled CrowdStrike has done better, rising by 4.40%.

Cybersecurity earnings

The SentinelOne stock price has risen this week as investors cheered recent earnings by some of the biggest companies in the cybersecurity industry. 

The most important results came from Palo Alto Networks, one of the biggest players in the industry whose stock jumped by 10% after upbeat results. Its revenues rose by 12% in the last quarter while the full-year sales jumped to over $8 billion.

Palo Alto Networks joined other companies like Fortinet and Check Point Software which published strong results. Fortinet said that its revenue rose by 10.9% in Q2 ro $1.43 billion while its gross margins jumped to 81.5%.

Similarly, Check Point Software’s revenue rose by 7% to $627 million while its security subscription jumped by 14% to $272 million.

These results show that the industry is growing as more companies remain concerned about cybersecurity threats in the era of artificial intelligence. This trend is expected to continue in the coming years, which will raise the need for advanced protectin solutions.

However, there are signs that companies like SentinelOne and Palo Alto Networks will see moderated growth. Besides, most big companies have already contracted one or more cybersecurity contractors.

At the same time, competition is heating up in the industry. The most recent entrant is Wiz, a company started in 2020, which was in talks to be acquired by Google for over $23 billion. Wiz claims that it serves over 40% of all companies in the Fortune 100 list. Some of its top clients are companies like DocuSign, Snowflake, and Experian.

SentinelOne earnings ahead

The next important SentinelOne news will be its Q2’FY25 earnings set for August 27. These results will provide more information about the company’s performance in the last quarter and its forward guidance.

SentinelOne’s recent financial results showed that its total revenue rose by 40% to $186 million as the number of customers spending $100,000 a year rose to 1,193, up from 917 in the same period last year. 

SentinelOne is growing both its revenues and margins. Gross margin rose to 73% from 68% as the company boosted its efficiencies and scale. 

The company’s guidance was that its revenue would come in at $197 million in the last quarter while its annual figure will be between $808 million and $815 million. Gross margins for the year will be between 78% and 79%. Historically, SentinelOne has a good track record of delivering conservative earnings estimates.

The average estimate among analysts tracking the company is that its revenue will be $197.2 million, a big increase from the $149 million it made in 2023. In the last 90 days, positive EPS revisions by analysts have been nine while negative ones stood at 9.

Analysts believe that SentinelOne could be a beneficiary of the recent CrowdStrike outage that affected thousands of companies globally. Besides, the two companies offer solutions that help companies protect their cloud infrastructure.

However, as I wrote this week, while CrowdStrike’s outage was costly, chances are that many companies will not change their service provider since such outage could happen in any company. 

In an interview with the Financial Times, CrowdStrike’s CEO also chimed in, blasting companies like SentinelOne and Trellix for criticizing his company and using the event to market their products. Another analyst, who focuses on IoT mobile app development services said that the company will likely continue doing well in the future.

SentinelOne valuation

A key concern for SentinelOne and other companies in the industry is that they are highly overvalued. 

SentinelOne has a market cap of over $7 billion and is expected to hit annual revenues of $1 billion next year. This means that it has a forward price-to-sales ratio of about 7x, which is quite high.

This is notable because SentinelOne has been a loss-making company for a long time. Its annual loss has totalled over $1.1 billion in the last four years. 

Assuming that its revenue next year will be $1 billion and that it can get a net income margin of 30% like Palo Alto Networks, it means that its profits would be about $300 million. That would mean that the company is still overvalued. That means that it needs to continue providing strong results to justify this valuation. 

SentinelOne stock price analysis

The daily chart shows that the S share price has formed two important patterns ahead of earnings. It has formed a golden cross pattern as the 50-day and 200-day Exponential Moving Averages (EMA) have crossed each other. In most cases, this pattern usually leads to more upside.

The stock has also formed an inverted head and shoulders pattern. Therefore, odds are that its stock will continue rising as buyers target the key resistance point at $25.10.