Can SailPoint’s Recent Share Price Rebound Be Justified By Its Current Valuation?

• If you have been wondering whether SailPoint is quietly turning into a value opportunity or just another mid-cap software name treading water, you are in the right place.
• The stock has edged up 3.9% over the last week and 9.6% over the past month, even though it is still down 4.4% year to date. This mix hints at shifting sentiment and fresh expectations from investors.
• Recent headlines continue to spotlight SailPoint as a key player in identity security and governance, with attention on how its platform fits into enterprises ramping up security and compliance spending. This renewed focus on strategic positioning helps explain why the share price has started to recover despite a softer run earlier in the year.
• On our metrics SailPoint only scores 1 out of 6 on undervaluation checks. In the sections that follow we break down what different valuation approaches say about the stock, and then wrap up with a more holistic way to think about SailPoint's true worth.

SailPoint scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: SailPoint Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company is worth by projecting its future cash flows and discounting them back to today, using a required rate of return. For SailPoint, the model starts with last twelve months Free Cash Flow of about $0.14 million and then layers in analyst expectations for rapid scaling, including projected Free Cash Flow of roughly $516 million by 2035. Analyst estimates underpin the nearer term, while Simply Wall St extrapolates the later years to complete the cash flow curve.

When all those future $ cash flows are discounted back to today in a two stage Free Cash Flow to Equity model, the intrinsic value comes out at roughly $11.91 per share. That implies the stock is about 76.6% above this DCF based fair value, meaning the market price reflects significantly more optimistic assumptions than this model. On this basis, SailPoint appears overvalued rather than a classic value opportunity.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests SailPoint may be overvalued by 76.6%. Discover 903 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for SailPoint.

Approach 2: SailPoint Price vs Sales

For software companies that are still scaling and not consistently profitable, the Price to Sales ratio is often the cleanest way to compare value, because revenue is less volatile and less easily distorted than earnings. Investors usually accept a higher P S multiple for businesses with stronger growth prospects and lower perceived risk, while slower or riskier names tend to trade closer to, or below, the market and industry norms.

Right now SailPoint trades on a P S of about 11.6x, which is well above both the broader Software industry average of roughly 4.9x and the peer group average of around 7.4x. Simply Wall St’s proprietary Fair Ratio model, which estimates what a stock’s P S should be after accounting for growth outlook, profitability profile, risk, industry and market cap, suggests a fair P S of about 7.1x for SailPoint. This Fair Ratio is more informative than a simple peer or industry comparison because it adjusts for the company’s specific fundamentals rather than assuming all software names deserve the same multiple. Comparing today’s 11.6x to the 7.1x Fair Ratio points to a stock that is pricing in a lot of optimism.

Result: OVERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1442 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your SailPoint Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, an approach that lets you spell out the story behind your numbers, including your assumptions for SailPoint’s fair value, future revenue, earnings and margins. A Narrative is simply your view of how the business will evolve, translated into a financial forecast that leads to a specific fair value estimate, which you can then compare directly to today’s share price to help frame your view on whether SailPoint fits your portfolio. Narratives on Simply Wall St, available to millions of investors through the Community page, are easy to create and update, and they automatically adjust when new information such as earnings releases or major news hits the market. For SailPoint, one investor might build a Narrative with high double digit revenue growth and expanding margins that supports a fair value well above the current price, while another might assume slower growth and more modest profitability, landing on a fair value far below where the stock trades today.

Do you think there's more to the story for SailPoint? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com