Is SentinelOne Stock a Buy on the Dip as Revenue Continues to Soar?

Shares of SentinelOne (NYSE: S) sank after it reported its fiscal second-quarter results, despite the company surpassing revenue estimates and increasing its guidance. The stock remains up about 40% on the year despite the drop in its share price.

Let's take a closer look at its results and prospects to see if this is a chance to buy the cybersecurity stock on the dip.

Strong revenue growth and increased guidance

SentinelOne saw strong sales growth, with revenue climbing 21% in its fiscal Q2 to $292 million. That topped its earlier $289 million to $291 million forecast, and was ahead of the $290.3 million consensus. Adjusted earnings per share (EPS), meanwhile, doubled from $0.04 to $0.08 and were at the high end of its $0.06 to $0.08 guidance.

Annual recurring revenue (ARR), which is the annualized value of its customer subscription and consumption-based contracts, grew by 23% to $1.16 billion. SentinelOne added new net ARR of $56 million in the quarter, up 4%. Meanwhile, the number of customers with ARR of $100,000 or more rose by 17% to 1,702.

SentinelOne said it is seeing strong demand for artificial intelligence (AI) security, with both its Purple AI and Prompt Security solutions tripling their ARR year over year in the quarter. Purple AI acts as an advanced AI security analyst, helping users run complex threat hunts using only natural language queries. Prompt Security, meanwhile, helps customers govern and secure the AI tools and agents they are using. The company also saw its third straight quarter of cloud security ARR acceleration, while it said its data lake and AI SIEM (Security Information and Event Management) solutions are gaining traction.

Non-endpoint solutions now make up more than half its ARR, while its new Flex program was more than 10% of ARR. Flex is a flexible licensing model that helps customers add bolt-on solutions to core subscriptions more easily.

While it didn't give a specific number, the company said its dollar-based net retention rate improved year over year and expanded sequentially for customers spending $100,000 or more in ARR. Remaining performance obligations (RPOs), meanwhile, surged 45% to $1.7 billion. The company said the RPO growth is coming from both larger and longer contracts with customers.

Turning to guidance, the company projected fiscal third-quarter revenue of between $309 million and $311 million, which would equate to 20% growth. It expects adjusted EPS of between $0.08 to $0.09.

For the full year, SentinelOne upped its guidance. It now expects revenue to grow 20% to between $1.2 billion and $1.21 billion, with adjusted EPS between $0.30 and $0.32.

It said its opportunity has never been better, with accelerating momentum with both its core Singularity platform and its newer AI products. With $813 million in cash and no debt on its balance sheet, it continues to both invest in growth opportunities and buy back stock.

Image source: The Motley Fool.

Time to buy the dip

SentinelOne turned in a strong quarter and offered upbeat guidance, led by growth in its newer AI solutions. The cybersecurity industry as a whole is seeing good momentum after the so-called Mythos momentum, when Anthropic revealed that its new Mythos model was able to find previously undetected software vulnerabilities. Perhaps most promising was the company's RPO growth, although investors clearly wanted some more transparency, as the company doesn't give ARR guidance or current RPOs.

Meanwhile, the stock is much cheaper than its endpoint cybersecurity peers', trading at a price-to-sales (P/S) ratio of 6 times compared to 37 times for CrowdStrike and 22 times for Palo Alto Networks. That means that if revenue starts to accelerate, which looks quite possible given its RPO growth and the momentum it is seeing with its AI products, SentinelOne stock could really see a lot of upside from here.

Geoffrey Seiler has positions in SentinelOne. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.