Want a 136% Return in 2023? Buy This Growth Stock, Says Wall Street
Companies that rely on consumer spending have suffered this year as high inflation and rising interest rates have put a strain on household finances. As a result, the financial growth of such organizations slowed down substantially in 2022.
But here’s a tip: Focus on companies that sell their services to other businesses instead, because many of them do better, especially those that operate in increasingly essential industries like cybersecurity. SentinelOne (S 0.85%) is a good example—it uses artificial intelligence (AI) to deliver advanced protection, and high-spending customers flock to use it, driving its revenue.
One Wall Street investment firm even thinks SentinelOne stock could more than double from where it’s trading today over the next 12 to 18 months. Here’s why investors might want to buy in now.
Cyber security is becoming critical
People who follow the news regularly have probably noticed the increasing frequency of data breaches, ransomware attacks and malicious behavior online in recent years. Companies that fall victim to these challenges face more than just financial losses; the trust they have built with customers is often shattered, leaving a significant reputational dent that is difficult to recover from.
According to a survey conducted this year by global consulting firm PwC, corporate leaders see cyber threats as the biggest risk to their revenues. It’s a big wake-up call, and it’s met with a stern response. A similar survey conducted by Morgan Stanley highlighted that cybersecurity is the last expense that companies will be willing to cut, even if a recession hits.
Organizations (especially large ones) are flocking to vendors of advanced cybersecurity tools like SentinelOne. In fact, the number of customers spending $100,000 or more each year doubled to 827 in the most recent quarter.
SentinelOne takes a bolder approach than some of its competitors, relying heavily on the capabilities of its artificial intelligence and machine learning models to reduce incident response times, eliminating the need for human intervention. It also delivers advanced, proactive tools like Hologram, which act as a decoy within customers’ networks to provoke and neutralize lurking threats.
It also takes visibility to new heights, which is beneficial for large companies. SentinelOne’s Singularity XDR platform allows teams to collaborate across departments from one single dashboard, streamlining workflows and ensuring clear communication, ultimately leading to more effective results.
SentinelOne has become a financial powerhouse
SentinelOne has at least doubled its sales in every single year since fiscal 2020, and it’s on track to do so again in fiscal 2023. In fact, the company originally told investors it expected to generate up to $370 million in revenue this year, but after a series of strong quarterly results, it drastically increased that forecast to $420 million.
Annual recurring revenue also rose 106% year-over-year to $487 million in the third quarter, indicating that its growth trajectory is likely to pick up, at least in the near term.
But despite the company’s strength, its share price has fallen 80% from its peak. Why? Because it continues to sacrifice profitability to generate its strong growth. Investors consider this a risky strategy when the economic situation is so uncertain. In the first nine months of fiscal 2023, for example, SentinelOne reported a substantial net loss of $285 million on $296 million in revenue.
However, this story is not as black and white as the company’s current profit and loss. SentinelOne’s net revenue retention rate came in at 134% in the fiscal third quarter, well above its 120% target. That means existing customers spend a whopping 34% more money with the company every year that passes. Therefore, it makes perfect sense for SentinelOne to continue to invest aggressively to bring those customers in the door, as they become significantly more valuable over time.
This is a long-term opportunity for investors who buy the stock now, while it is so beaten down.
Wall Street is bullish on SentinelOne
The Wall Street Journal follows 21 analysts who cover SentinelOne stock, and not a single one recommends selling. In fact, 14 of them gave it the highest possible buy rating, with one in the overweight (bullish) camp, and the rest took a neutral stance.
But one investment firm in particular — JMP Securities — is predicting big upside in SentinelOne stock over the next 12 to 18 months. Its price target is $36 per share, which represents a 136% gain from where it is trading as of this writing.
The need for advanced cybersecurity isn’t going away anytime soon, so given SentinelOne’s rapid growth, and with Wall Street in its corner, investors may want to consider building a position before the new year.