Is the Recent Drop in SentinelOne Shares a Long Term Opportunity?

• Ever wondered if SentinelOne is a bargain right now, or if the risks outweigh the upside? You are not alone, especially with so much buzz about how software stocks are valued these days.
• The stock has seen its share of ups and downs lately. It is down 0.9% for the past week and nearly 10% over the last month. The longer-term story shows a 14% gain over three years, but a 41.6% drop over the past twelve months.
• These swings have come as investors respond to shifting sentiment in the cybersecurity sector and headline moves around competitors and industry consolidation. Recent news around increased cyber threats and mergers and acquisitions trends has kept the spotlight on the whole group, driving volatility in stocks like SentinelOne.
• When it comes to valuation, SentinelOne scores an impressive 5 out of 6 on our value assessment, putting it above most software peers. Let us dive into how that number is calculated using different valuation approaches, and discuss an alternative way to think about what the market might be missing.

Find out why SentinelOne's -41.6% return over the last year is lagging behind its peers.

Approach 1: SentinelOne Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future cash flows and then discounting them back to today’s dollars. This approach provides an intrinsic value based on underlying fundamentals rather than market sentiment.

For SentinelOne, the most recent annual Free Cash Flow stands at $12.3 Million. According to analyst projections, Free Cash Flow is expected to grow substantially over the coming years, reaching around $215 Million by 2028. Longer-term extrapolations suggest this figure could rise even higher over the next decade, with estimates exceeding $637 Million by 2035, all in US dollars. These projections reflect strong expectations for SentinelOne’s future business growth in the cybersecurity software industry.

Applying the DCF model to these projected cash flows results in an intrinsic value of $23.54 per share. Compared to the current share price, the model indicates that SentinelOne is trading at a 31.7% discount. This means the stock appears notably undervalued, offering investors a possible bargain according to the DCF analysis.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests SentinelOne is undervalued by 31.7%. Track this in your watchlist or portfolio, or discover 927 more undervalued stocks based on cash flows.

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

Approach 2: SentinelOne Price vs Sales

The price-to-sales (P/S) ratio is often the preferred valuation metric for companies like SentinelOne, which are rapidly growing but not yet consistently profitable. Unlike price-to-earnings, the P/S ratio allows investors to value growth companies based on their revenue generation before profits fully materialize. This can make it especially useful for evaluating high-growth software stocks.

The "normal" or "fair" P/S ratio for a company is influenced by expectations of sales growth, profitability ramps, and risks such as competition or cash burn. Companies with higher growth rates and wider runways often justify higher multiples. On the other hand, increased risk or slower growth can push the fair ratio lower.

Currently, SentinelOne trades at a P/S multiple of 5.94x. For context, the peer average is 6.57x and the broader software industry average is 4.74x. Simply Wall St’s proprietary “Fair Ratio” for SentinelOne is calculated at 6.26x, which considers company-specific factors like revenue growth, industry trends, profit margins, relative risks, and the firm’s market cap.

The Fair Ratio is particularly useful because it customizes the benchmark to SentinelOne’s unique situation. It avoids relying solely on broad peer or industry averages, which may miss crucial differences in risk, profitability, or growth potential. By looking at the Fair Ratio, investors can make a more targeted assessment of valuation compared to using industry multiples alone.

With SentinelOne’s P/S ratio at 5.94x compared to a Fair Ratio of 6.26x, the stock appears to be ABOUT RIGHT in terms of valuation using the sales multiple approach.

Result: ABOUT RIGHT

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your SentinelOne Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is a simple but powerful way for you to apply your own story and assumptions to a company, turning financial forecasts and market updates into a living, personalized investment thesis.

Instead of just crunching numbers, a Narrative links SentinelOne’s unique business story directly to assumptions about future revenue, margins, and fair value. This creates a clear bridge from company outlook to real-world investing decisions. Narratives are easy to create and update, making this approach accessible to investors of all experience levels. You can explore these perspectives right on Simply Wall St’s Community page, where millions of investors share and discover different viewpoints.

What makes Narratives truly dynamic is how they help you quickly spot if a stock may be overvalued or undervalued by comparing your Narrative’s Fair Value to the current share price, while automatically updating as fresh news or earnings roll in. With SentinelOne, for example, one investor may see rapid AI-powered growth and global expansion, setting a Fair Value near $30 per share. Another may focus on heavy partner reliance or industry consolidation, targeting a more cautious $19 per share.

Do you think there's more to the story for SentinelOne? 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.

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