This artificial intelligence (AI) stock is down 38% in 2024. Should investors start buying it right away?

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Sentinel One (NYSE: S ) Investors have endured a terrible 2024 so far, with shares of the cybersecurity specialist down 38 percent. The company's latest results for the first quarter of fiscal 2025 (for the three months ended April 30) also added to the gloom.

The company's shares crashed more than 13% in a single session after its quarterly report, though it well beat Wall Street's top and bottom line expectations. Let's look at why this happened and check if new drivers of cybersecurity, such as artificial intelligence (AI), can help supercharge the company's growth.

The big picture for Sentinel One is solid despite earnings guidance concerns.

The company's fiscal quarter revenue rose 40% year-over-year to $186.4 million, beating the consensus estimate of $181.1 million. Additionally, it broke even on the bottom line on a non-GAAP basis, compared to a loss of $0.15 per share in the year-ago period. Analysts were expecting a loss of $0.05 per share.

However, SentinelOne lowered its full-year revenue guidance to $808 million to $815 million, down from an earlier range of $812 million to $818 million. The latest guidance shows its revenue is on track to grow about 31 percent from fiscal 2024 levels at the midpoint. It's worth noting that SentinelOne's top line in fiscal 2024 was an impressive 47%.

SentinelOne's management indicated on the company's latest earnings conference call that it had “adjusted its guidance to reflect the impact of continued macro uncertainty and our go-to-market transition.” More specifically, the company is witnessing tighter costs for businesses thanks to two factors affecting its customers' budgets, higher interest rates and inflation.

Even then, there were a few silver linings that investors shouldn't miss. For example, the number of Sentinel One customers with annual recurring revenue (ARR) of more than $100,000 grew 30% year-over-year to 1,193 last quarter. This metric refers to the company's annual revenue rate from subscription, consumption, and usage-based contracts at the end of the period, so an increase in ARR indicates an increase in adoption of its cybersecurity platform.

It also explains why SentinelOne's adjusted gross margin increased to 79% in the latest quarter from 75% in the year-ago period. These metrics tell us that SentinelOne delivered a resilient performance despite cost challenges, driven by the growing adoption of the company's AI-powered Singularity cybersecurity platform.

Uniqueness allows enterprises to prevent and remediate cyber threats in real-time with the help of AI models. On the plus side, SentinelOne is seeing strong interest in its AI-focused solutions such as Purple AI, a generative AI cybersecurity assistant powered by a large language model (LLM) that the company introduced in April this year. .

SentinelOne management reports that customers using Purple AI have “reported 80% faster threat detection and investigation,” and security teams have been able to save hours performing cybersecurity tasks. The adoption of generative AI within the cybersecurity space is expected to grow at a CAGR of 26% through 2032 and generate annual revenue of $147 billion by the end of the forecast period. So, it wouldn't be surprising to see Sentinel One's growth ramp up again in the future.

Is the assessment attractive enough?

SentinelOne is currently trading at 7.5 times sales, roughly in line with the current price-to-sales ratio of the US technology sector. However, the company's slow growth means it's not exactly a screaming buy.

On the bright side, however, Sentinel One's margin gains are expected to help it report a smaller non-GAAP profit in the current fiscal year, compared to a loss of $0.28 per share in fiscal 2024.

EPS Estimates for the Current Fiscal Year Chart

What's more, analysts expect Sentinel One's bottom line to grow at an annual rate of 40% over the next five years. However, if the company's AI-focused platform continues to gain steam and drive greater customer spending, it could be able to deliver even stronger bottom-line growth. That's why opportunistic investors could consider using the pullback in this cybersecurity stock as a buying opportunity, as the adoption of AI in this space could give Sentinel One a nice boost in the long run. .

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no positions in any of the stocks mentioned. The Motley Fool has a Disclosure Policy.

This artificial intelligence (AI) stock is down 38% in 2024. Should investors start buying it right away? Originally published by The Motley Fool.

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