SentinelOne(NYSE: S), a provider of AI-powered cybersecurity services, attracted a lot of attention when it went public at $35 per share on June 30, 2021. Its stock opened at $46 and eventually closed at an all-time high of $76.30 on Nov. 12, 2021.
At the time, investors were impressed by its rapid growth and ambitious plans to replace human analysts with AI algorithms. But at its peak, SentinelOne's market cap swelled to $13.5 billion -- or 66 times the revenue it would generate in fiscal 2022 (ended in January 2022).
Image source: Getty Images.
Those lofty valuations became unsustainable as its growth rates decelerated, it racked up more losses, and rising interest rates drove investors toward more conservative investments. Today, it trades at about $19 with a market cap of $6.3 billion. That's just 6 times the revenue of $1.01 billion it's expected to generate in fiscal 2026. So should investors buy SentinelOne and expect it to recover over the next 12 months? Or will its upside potential remain limited in this volatile market?
What happened to SentinelOne over the past few years?
SentinelOne's Singularity XDR (extended detection and response) endpoint security platform uses AI algorithms to tackle cybersecurity threats. It claims its automated approach is faster, more efficient, and less prone to making mistakes than teams of human analysts.
SentinelOne runs Singularity on a mix of on-site appliances and cloud-based services. That hybrid approach allows its clients to access its services without an internet connection -- which is a blind spot for cloud-native cybersecurity leaders like CrowdStrike.
SentinelOne's revenue more than doubled in fiscal 2021, fiscal 2022, and fiscal 2023. Its dollar-based net revenue retention rate, which gauges its year-over-year growth per existing customer, also expanded throughout all three years. Its annual recurring revenue (ARR) skyrocketed as it grew its percentage of large customers, which generated more than $100,000 in ARR.
Metric
FY 2021
FY 2022
FY 2023
FY 2024
FY 2025
Revenue growth
100%
120%
106%
47%
32%
Dollar-based net revenue retention rate
117%
129%
132%
114%
110%
ARR growth
96%
123%
88%
39%
27%
Growth in customers with $100,000+ in ARR
109%
137%
74%
30%
25%
Data source: SentinelOne.
SentinelOne now serves more than 14,000 costumers, and 1,411 of them were generating over $100,000 in ARR at the end of fiscal 2025. But in fiscal 2024 and fiscal 2025, its growth decelerated.
That slowdown was caused by tougher competition from larger cybersecurity companies like CrowdStrike and Palo Alto Networks, which are both expanding their AI-driven services; macro headwinds that made it tougher to gain new customers; and the retirement of its legacy Deception identity security product to focus on Singularity's growth.
What will happen to SentinelOne over the next year?
SentinelOne expects that slowdown to continue with 23% revenue growth in fiscal 2026 as those headwinds persist. During its latest conference call in March, CEO Tomer Weingarten said the company must "remain mindful of the macro environment" as the "political uncertainty continues to impact budget, timing, and business decisions" for many of its customers. Analysts expect its revenue to only rise 22% in fiscal 2027.
That slowdown wouldn't be too worrisome if SentinelOne were profitable. But it only slightly narrowed its net loss from $339 million in fiscal 2024 to $288 million in fiscal 2025 on a generally accepted accounting principles (GAAP) basis, and analysts expect it to post another net loss of $250 million in fiscal 2026. It only held $187 million in cash and equivalents at the end of fiscal 2025.
On the bright side, SentinelOne's non-GAAP gross margin improved from 2 percentage points to 79% in fiscal 2025. Its non-GAAP operating margin also rose from negative 19% to negative 3% as it trimmed its workforce, discontinued Deception, and streamlined its spending.
For fiscal 2026, the company expects its non-GAAP gross margin to rise to 78.5%-79.5% with a positive non-GAAP operating margin of 3%-4%. Those green shoots indicate it isn't being clobbered by its bigger competitors, and its GAAP margins could improve once it reins in the stock-based compensation expenses that consumed nearly a third of its revenue in fiscal 2025. Its low debt-to-equity ratio of 0.4 also leaves it some room to take on more debt if it runs low on cash.
Is SentinelOne worth buying today?
Assuming SentinelOne matches analysts' expectations for fiscal 2026 and fiscal 2027 -- and still trades at 6 times its forward sales at the beginning of calendar 2026 -- its market cap might grow 17% to $7.4 billion over the next 12 months. That would be a decent gain, but a lot of near-term macro and competitive headwinds could prevent it from meeting Wall Street's forecasts.
If you believe SentinelOne will continue to challenge traditional cybersecurity companies with its AI-driven services, it might be worth nibbling on right now. However, I think it could trade sideways and struggle to stay ahead of the market until its growth rates stabilize and its GAAP margins improve.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.
