Shares of cyber security company SentinelOne (NYSE:S) jumped 5.22% in the pre-market session after Morgan Stanley upgraded the stock to Overweight (buy) from Equal Weight (Hold). Analyst Hamza Fodderwala thinks the market is not fully appreciating the stock as a long-term share gainer and margin story. He highlighted that SentinelOne is trading at what he thinks is a ~50% discount to peers, making the current risk/reward an attractive one. Fodderwala has a $20 price target on the stock.
What is the market telling us:
SentinelOne's shares are very volatile and over the last year have had 52 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 previous big move was 11 days ago, when the stock dropped 34.9% on the news that the company reported first-quarter results that missed analysts' revenue estimates. Earnings per share (EPS) beat. However, the company continued to burn cash. Guidance was also weak. Revenue guidance for the next quarter was below Consensus. Full year guidance revenue was lowered and also came in below expectations. Lowering guidance is always a worrisome sign, and the company reducing full year revenue guidance by more than 6% is also a meaningful magnitude. Additionally, operating margin guidance was maintained on the lower revenues; it would have been much more comforting had margins increased, showing that the company was perhaps prioritizing profits and efficiency over growth at all costs. Management called out a difficult macro backdrop and acknowledged that the quarter was a "tough" one. The overall results and commentary were weak, with the topline miss and underwhelming guidance providing little reason to be optimistic.
SentinelOne is up 6.04% since the beginning of the year, but at $15.40 per share it is still trading 47.5% below its 52-week high of $29.33 from September 2022. Investors who bought $1,000 worth of SentinelOne's shares at the IPO in June 2021 would now be looking at an investment worth $363.53.
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