Shares of SentinelOne (NYSE: S) tumbled after the company reported its fiscal third-quarter 2025 results, despite the cybersecurity company topping revenue estimates and increasing its guidance. The drop pushed the stock into negative territory for the year.
Let’s take a closer look at the company’s most recent results and the opportunities ahead of it, to see if this is a chance to buy the stock on the dip.
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SentinelOne continued to show strong revenue growth, with sales climbing 28% in its fiscal Q3 to $210.6 million. That came in solidly ahead of its earlier $209.5 million forecast, and ahead of the year-ago mark of $164.2 million.
Annual recurring revenue (ARR), which is the annualized value of its customer subscription and consumption-based contracts, climbed by 29% to $859.7 million. It added new net ARR of $54 million in the quarter. Meanwhile, the number of customers with ARR of $100,000 or more grew by 24% to 1,310.
SentinelOne again called out its Purple AI solution as being a growth driver, saying it has seen rapid adoption to become one of the fastest-growing solutions in the company’s history. It said the attach rate for the solution doubled compared to the second quarter. The company describes Purple AI as the industry’s most advanced AI security analyst, and says it can help any analyst conduct complex threat hunts using only natural language queries.
Gross margin rose from 73% a year ago to 75%. Adjusted gross margin, which excludes stock-based compensation expenses, edged up to 80% from 79%. The company credits the margin expansion to greater scale, data efficiencies, and increased customer platform adoption.
One area that may have disappointed investors was earnings. The company produced a de minimis adjusted profit, or $0.00 per share, which came up just short of the $0.01 analyst consensus. A year ago, the company turned in a loss of $0.03 per share.
Operating cash flow came in at negative $7 million, while free cash flow was negative $13 million. However, the company is free cash flow positive on a trailing 12-month basis. It ended the quarter with about $1.1 billion in net cash and short- and long-term investments and no debt.
Turning to guidance, the company projected fiscal fourth-quarter revenue of approximately $222 million, which would equate to over 27% growth. It expects adjusted gross margin of 79%. Analysts were expecting fiscal Q4 revenue of $220.6 million.
SentinelOne said it is continuing to take advantage of the aftermath of CrowdStrike‘s IT outage, and that it has a record number of wins versus its closest competitor. It said a Fortune 50 company switched to its platform in the quarter, while a number of federal and local government entities also switched. It added that it saw its most large enterprise displacements ever.
Image source: Getty Images.
While investors appeared to want more, SentinelOne turned in a strong quarter and offered upbeat guidance that was ahead of analyst estimates.
While investor expectations appear to be elevated, the company’s valuation is not. The stock continues to trade at a wide discount to peers on a price-to-sale (P/S) basis, despite similar revenue growth to CrowdStrike (29% last quarter) and much higher revenue growth than Palo Alto Networks (14% last quarter).
Meanwhile, SentinelOne’s expanded deal with Lenovo, which includes pre-installations and managed security offerings, isn’t set to ramp up until the second half of 2025, when the enterprise PC vendor will start shipping PCs with its Singularity Platform preinstalled. Lenovo is the largest enterprise PC vendor in the world, so this is a substantial opportunity.
In addition to Lenovo and winning some business from CrowdStrike, SentinelOne is also looking to grow in other areas. It has a deal with Amazon where Amazon Web Services customers can run Purple AI on Amazon Bedrock, the cloud computing company’s service for building AI models based on its own and third-party foundational models. SentinelOne is also looking to aggressively expand its presence in the federal government space.
Overall, I would take advantage of this dip and be a buyer of the stock, given the opportunities in front of the company and its relatively inexpensive valuation.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in SentinelOne. The Motley Fool has positions in and recommends Amazon and CrowdStrike. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.
