Identity Security Platform Will Benefit From Rising Non Human Identities And Cloud Migration

Catalysts

About SailPoint

SailPoint provides an identity security platform that unifies governance for human, machine and agent identities across modern enterprise environments.

What are the underlying business or industry changes driving this perspective?

• Accelerating shift from compliance-centric identity governance to real-time adaptive identity positions SailPoint at the control point of enterprise security, supporting sustained double digit ARR and revenue growth as identity spend becomes more strategic.
• Rapid proliferation of non-human identities, including machines and AI agents, expands SailPoint's addressable market through offerings like Machine Identity and Agent Identity Security, driving higher cross sell intensity and net revenue retention.
• Ongoing migration of legacy IdentityIQ customers to Identity Security Cloud, supported by flex licensing, unlocks two to three times more ARR per customer and structurally increases the subscription mix and earnings power.
• Growing need to secure direct access to structured and unstructured data, and to feed identity context into SOC workflows through Observability and Insights, opens new budget pools in data and security operations, supporting long term revenue and margin expansion.
• Industry consolidation around bundled security stacks creates demand for an independent identity layer with deep integrations, allowing SailPoint to monetize as a cross vendor fabric and sustain attractive operating margins while scaling.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming SailPoint's revenue will grow by 19.2% annually over the next 3 years.
• Analysts are not forecasting that SailPoint will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate SailPoint's profit margin will increase from -61.9% to the average US Software industry of 12.4% in 3 years.
• If SailPoint's profit margin were to converge on the industry average, you could expect earnings to reach $213.6 million (and earnings per share of $0.37) by about December 2028, up from $-629.8 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 92.2x on those 2028 earnings, up from -18.8x today. This future PE is greater than the current PE for the US Software industry at 32.9x.
• Analysts expect the number of shares outstanding to grow by 0.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.44%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Security and observability vendors that are already embedded in the SOC are moving into identity governance and privilege. If their bundled platforms close the breadth and depth gap that SailPoint currently cites as its moat, SailPoint's ability to remain the independent identity control layer could erode over time, pressuring revenue growth and net revenue retention.
• The rapid emergence of agentic AI and non-human identities may outpace enterprises' willingness to operationalize and trust AI driven identity decisions at scale. This could slow adoption of newer offerings like Agent Identity Security and Observability & Insights and limit upside to ARR growth and cross sell driven earnings expansion.
• SailPoint's strategy depends heavily on migrating a large on premises maintenance base to Identity Security Cloud and flex licensing. If customers delay modernizations due to budget cycles, competing priorities or migration complexity, the expected two to three times uplift in ARR and associated margin expansion could take longer to materialize, dampening earnings growth.
• As SailPoint leans further into AI internally and within products like Harbor Pilot and real time adaptive identity, any high profile misconfiguration, false positive incident or perceived AI related breach could undermine customer trust in automated governance. This could force higher human oversight and increase operating expenses, which would weigh on operating margins.
• The long term shift from traditional term licenses and federal contracts with longer durations toward more flexible SaaS and usage based models may introduce greater variability in deal sizes and renewal timing. If macro conditions weaken or federal term renewals normalize, SailPoint's currently strong ARR growth, operating margin and free cash flow margin could decelerate.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $26.77 for SailPoint based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $31.7, and the most bearish reporting a price target of just $23.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $213.6 million, and it would be trading on a PE ratio of 92.2x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $21.03, the analyst price target of $26.77 is 21.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.