Is This Beaten-Down Cybersecurity Stock Finally Worth Buying?

Shares of SentinelOne (NYSE:S) dropped more than 5% following the release of the company's fiscal 2025 fourth-quarter results (for the three months ended Jan. 31) on March 12. The cybersecurity specialist's guidance turned out to be weaker than expectations.

Though SentinelOne clocked healthy year-over-year growth last quarter and swung to a profit, it looks like the tight spending environment weighing on the company's growth this year.

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Let's take a closer look at what's hurting SentinelOne and see if the recent decline has made the stock attractive enough for investors to consider buying the stock.

SentinelOne may have hit a speed bump, but the bigger picture appears to be bright

SentinelOne recorded a 32% increase in revenue in fiscal 2025 to $821 million, while its non-GAAP net loss shrank by 20% to $0.92 per share. However, the company is expecting slower revenue growth of 23% in fiscal 2026. SentinelOne attributes its cautious guidance to "macroeconomic conditions, deal timing, and federal spending uncertainty."

However, a closer look at some of SentinelOne's key metrics suggests the company could end up delivering faster growth, thanks to its improving revenue pipeline and the bigger deals that it is signing with its existing customers. Management provided several examples on the latest earnings conference call of winning business from rival cybersecurity companies.

SentinelOne points out that the addition of artificial intelligence (AI)-powered features to its cybersecurity platform is helping customers bring down the time taken to detect threats while also reducing costs. As a result, SentinelOne customers are increasing their use of its AI-focused cybersecurity modules, leading to a nice jump in the company's revenue pipeline.

This is evident from the 30% year-over-year increase in SentinelOne's remaining performance obligations (RPO) in the previous quarter to $1.2 billion. This metric refers to the total value of a company's contracts that are yet to be fulfilled. The size of SentinelOne's RPO suggests that it could deliver better-than-expected results as the year progresses.

More importantly, SentinelOne's ability to win a bigger share of its customers' wallets is having a positive effect on the company's margin profile. The company ended the latest fiscal year with a non-GAAP operating margin of minus 3%, which was a huge improvement over the negative reading of 19% in the preceding year.

Even better, SentinelOne is expecting to report a non-GAAP operating margin of 3% to 4% in the current fiscal year. Another thing worth noting here is that SentinelOne sees a massive total addressable market worth more than $100 billion for its cybersecurity solutions. This indicates the company could eventually witness a reacceleration in growth.

The good part is that SentinelOne's RPO growth picked up in the previous quarter, jumping by five percentage points on a sequential basis. This is another indicator that the company could indeed regain its mojo in the future and put the disappointment of the previous quarter behind.

Outstanding earnings growth could send the stock higher

SentinelOne became profitable in fiscal 2025 on a non-GAAP basis, reporting earnings of $0.05 per share as compared to a loss of $0.28 per share in the preceding year. Looking ahead, analysts are expecting a sharp increase in SentinelOne's earnings for the next three fiscal years.

S EPS Estimates for Current Fiscal Year data by YCharts.

This rapid growth in the company's bottom line could help the stock deliver robust gains in the long run. Not surprisingly, the stock carries a 12-month median price target of $25, which points toward a potential jump of 33% from current levels. Of the 36 analysts covering SentinelOne, nearly three-fourths recommend buying it.

So, the 15% drop in SentinelOne's stock price this year, which has brought its price-to-sales ratio down to 7 as compared to almost 9 at the end of 2024, suggests that savvy investors can indeed consider buying this stock following its pullback. That's because stronger-than-expected results in the coming quarters could send this cybersecurity stock flying once again.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.