SentinelOne, Inc. (NYSE:S) Looks Just Right With A 29% Price Jump

The SentinelOne, Inc. (NYSE:S) share price has done very well over the last month, posting an excellent gain of 29%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 23% in the last twelve months.

Since its price has surged higher, SentinelOne's price-to-sales (or "P/S") ratio of 14.2x might make it look like a strong sell right now compared to other companies in the Software industry in the United States, where around half of the companies have P/S ratios below 4.2x and even P/S below 2x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for SentinelOne

How Has SentinelOne Performed Recently?

SentinelOne certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on SentinelOne.

Is There Enough Revenue Growth Forecasted For SentinelOne?

The only time you'd be truly comfortable seeing a P/S as steep as SentinelOne's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 106%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 43% per year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 13% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why SentinelOne's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On SentinelOne's P/S

SentinelOne's P/S has grown nicely over the last month thanks to a handy boost in the share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that SentinelOne maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for SentinelOne you should be aware of.

If you're unsure about the strength of SentinelOne's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.