What Happened:
Shares of cyber security company SentinelOne (NYSE:S) jumped 6.3% in the afternoon session after major indices soared as yields declined after the Bureau of Labour Statistics reported CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of May 2024 came in better than expected at 3.3% year on year (versus analysts' expectations for 3.4%). The data also revealed that inflation was flat (unchanged) month on month. The inflation results benefitted from a 2% decline in the energy index, while shelter inflation remained sticky (up 0.4% m/m and 5.4% y/y). Sticky inflation is exactly what has delayed the Fed's planned rate cuts in 2024, with some market participants likely worried that inflation might stay higher for longer. Today's report eased those worries a bit.
Separately, the Federal Open Market Committee kept interest rates at 5.25% to 5.50% following its June 2024 monetary policy meeting while also projecting no more than one rate cut in the second half of the year. The committee noted in its post-meeting statement that, "In recent months, there has been modest further progress toward the Committee's 2 percent inflation objective."
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
Is now the time to buy SentinelOne? Access our full analysis report here, it's free.
What is the market telling us:
SentinelOne's shares are quite volatile and over the last year have had 21 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 16.7% on the news that the company reported fourth-quarter results and provided revenue guidance for the upcoming year, which came in below expectations, suggesting a slowdown in demand amidst an intense competitive landscape with cybersecurity peers like CrowdStrike. In addition, its net revenue retention rate of 115% missed estimates of 118%. That means its existing customers bought fewer products, and the company is more dependent on new customers (expensive to acquire) to generate growth. Guidance was also underwhelming, with the revenue projections for the next quarter and full year roughly in line with expectations. Overall, this was a tough quarter for SentinelOne.
SentinelOne is down 30% since the beginning of the year, and at $18.12 per share it is trading 39.6% below its 52-week high of $30 from February 2024. Investors who bought $1,000 worth of SentinelOne's shares at the IPO in June 2021 would now be looking at an investment worth $425.87.
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