Why Investors Shouldn't Be Surprised By SentinelOne, Inc.'s (NYSE:S) P/S

You may think that with a price-to-sales (or "P/S") ratio of 11.2x SentinelOne, Inc. (NYSE:S) is a stock to avoid completely, seeing as almost half of all the Software companies in the United States have P/S ratios under 4.7x and even P/S lower than 1.8x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for SentinelOne

How Has SentinelOne Performed Recently?

With revenue growth that's superior to most other companies of late, SentinelOne has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on SentinelOne will help you uncover what's on the horizon.

How Is SentinelOne's Revenue Growth Trending?

In order to justify its P/S ratio, SentinelOne would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 38%. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 29% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 20% per 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.

What Does SentinelOne's P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into SentinelOne shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 3 warning signs for SentinelOne that we have uncovered.

If these risks are making you reconsider your opinion on SentinelOne, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.