This Stock Could Pay Off Better Than a Lottery Ticket -- if You Hold Long Enough

Key Points

• SentinelOne crossed $1 billion in annual recurring revenue and maintains an industry-leading gross margin.

• The cybersecurity company is expanding from endpoint security into AI, data, and cloud security.

• It has a strong balance sheet with $1.2 billion in cash and no debt, giving it the flexibility to fund new initiatives.

• 10 stocks we like better than SentinelOne ›

Investing, usually, is not about quick gains. Historically, investors who identified promising companies early in their growth phase and purchased shares at a reasonable price have been able to generate substantial wealth over the long term.

SentinelOne (NYSE: S) seems to be one such company. Although small compared to cybersecurity giants such as CrowdStrike and Zscaler, the company's fundamentals are strong enough to support steady top-line growth and margin expansion.

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Endpoint security to an AI-native security platform

SentinelOne has been primarily known as an endpoint security player, securing servers, workstations, and end-user devices from malicious threats and cyberattacks. However, over the past few years, the company has gradually expanded into newer areas, such as cloud security, artificial intelligence (AI)-native SIEM (security information and event management) solutions for data security, and, more recently, into generative AI-powered security.

The numbers highlight SentinelOne's rapidly improving prospects. Annual recurring revenue (ARR) grew 24% year over year to over $1 billion in its fiscal 2026's second quarter (ended July 31). The company's Q2 revenue rose 22% to $242 million, while gross margins were a healthy 79%, among the best in the sector. Its operating margin turned positive at 2%, and free cash flow was also positive. SentinelOne also ended Q2 with $1.2 billion in cash and no debt.

Management expects to report its first full year of operating profit in fiscal 2026. This can be a significant turning point for the company's share prices. SentinelOne's unified AI, data, and security platform strategy is driving new customer additions as well as deeper adoption within existing accounts. Large enterprises are choosing SentinelOne's Singularity platform to consolidate multiple security tools into a single solution.

The company's AI-powered security assistant, Purple AI (integrated into the Singularity platform), which automates threat detection and remediation, is growing at a triple-digit rate and had an attach rate of over 30% of licenses sold in Q2. The new SentinelOne Flex licensing model also makes it easier for customers to try more modules, driving more consumption of modules over time. This, in turn, can help expand deal sizes and client retention.

Generative AI security

Increasing adoption of generative AI and agentic AI technologies globally has also created new risks, such as data leakage (unauthorized leakage of sensitive and confidential information through the use of generative AI), prompt injection (cyberattacks where malicious inputs are disguised as legitimate prompts), shadow usage of AI tools (unsanctioned use of AI tools without approval or oversight of IT departments), compliance, and control.

SentinelOne has been focused on these new opportunities in the cybersecurity space. To that effect, the company recently acquired Prompt Security, a company known for securing AI tools and applications in runtime. This deal enables Sentinel to monitor how employees interact with AI systems and what data is shared, and use automated enforcement to prevent prompt injection and the leakage of sensitive information.

While it is still early to gauge its revenue potential, this deal can position SentinelOne as one of the few vendors that can secure both traditional IT systems and the new generation of AI-driven workloads. Hence, generative AI can become a significant growth catalyst for the company in the long run.

Valuation is attractive

SentinelOne shares currently trade at a price-to-sales (P/S) ratio of nearly 7, which is significantly lower than its peers, such as CrowdStrike and Zscaler, which trade at P/S multiples of 23.8 and 16.5, respectively.

Investors have to consider certain risks. Cybersecurity is a highly competitive market, dominated by technology giants such as Microsoft and CrowdStrike. Additionally, while Prompt Security can prove lucrative in the long run, it adds costs in the near term with limited immediate revenue.

But future forecasts paint an optimistic picture. Analysts expect SentinelOne's revenue to more than double from around $1 billion in fiscal 2026 (ending Jan. 31, 2026) to nearly $2.23 billion in fiscal 2030. Adjusted earnings per share (EPS) are expected to rise from roughly $0.19 in fiscal 2026 to $1.05 in fiscal 2030, an increase of over 450%.

If the company achieves these revenue and earnings targets, the share price could be several times higher than its current level even at current valuation levels. Of course, the market would also improve its valuation multiples to bring them closer to those of its peers.

But all this will not happen in a few months or even a year. Consider Amazon, which spent years building its e-commerce and cloud businesses before investors fully recognized the stock's potential. SentinelOne is at a similar stage: The building blocks are in place, but patience is required for the scale to show through in the financials.

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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, CrowdStrike, Microsoft, SentinelOne, and Zscaler. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.