Bert came out with another of his comprehensive many-page reviews, this time with a follow-up recommendation on Sentinel, called “SentinelOne: Rapid Growth And A Pivot Toward Profitability”.
As Bert is rated in the top 1/1000th of all analysts by Tip Ranks who rates about 20,000 or so analysts based on the results of their recommendations (how they pan out over the next year as I remember), I think it’s worth taking the time to read Bert’s article.
Here’s a little excerpt from his long write-up.
Saul
Wrapping up - Should investors buy SentinelOne shares
I am reaffirming my purchase recommendation for the shares at the closing price of $19.15/share as of 5/18. Sentinel shares are volatile, and while they have appreciated the past 10 days or so, the valuation on an EV/S basis is hardly extended. (EV/S = 6.8)
SentinelOne is one of the leaders in the endpoint security space and that is where it gets most of its revenues. That said, it now has entered adjacencies, particularly including cloud workload protection and what is known as a Security DataLake. It also has an offering in the identity protection space along with a partnership with Wiz, one of the hottest cyber security startups. It is my belief that it will continue to gain wallet share in the cyber-security space for the foreseeable future. It has embraced the leading trends in mitigating cyber-attacks, and appears to have a holistic solution that is resonating with larger enterprises.
Sentinel has always used AI as the core of its technology-this is not some adaptation to catch a wave, but really has been the foundation of everything the company has ever offered. Whether or not Sentinel gets a premium valuation because of its AI focus is not something I feel I can predict. It certainly doesn’t have such a valuation currently…
Bert’s article is very positive. He mentions the many partnerships Sentinel has established which greatly enhance the reach of their security offerings and obviously makes their offerings more appealing to prospective customers (Wiz, Okta, Zscaler and more).
He also asserts that at the current price point Sentinel is at favorable valuation as opposed to the lofty multiple it held some time ago.
In addition, I found this paragraph to be particularly encouraging with respect to the upcoming earnings call scheduled for 6/1:
“Guidance for this year has been set at unusually conservative levels, a function of macro concerns rather than some slowing cadence of sales performance. Indeed pipeline growth has been accelerating and is far greater than needed to support the sales forecast which is essentially predicated on growth of ARR not larger than the growth the company achieved in that metric in the prior fiscal year.”
Point of my post: Is “promising” better than “getting”?
Yes, it’s encouraging to see progress. Both in how they are strengthening the company as well as progress in financial performance. There is no denying that.
But (personally) I ask myself “Is it suitable to invest in XYZ, which is …making progress toward profitability… or is it both better to wait for actual profitability AND invest instead in companies that are profitable NOW?”.
Yes, I am merely stating… again… my (perhaps) boring focus on profitable companies at this time. I have been buying those and shunning unprofitability.
Does it work?
Ummmm… admittedly, the proof is not yet in the pudding. Yes, I have done VERY well with SMCI (which has greatly improved profitability as well as improved financials, appearing greatly undervalued…still) and yet have poor results with ENPH (due to what I’ll describe as “fabulous growth… temporarily interrupted”) and modest results with TSLA (an Austin Texas based manufacturer of autos and energy storage devices for those unfamiliar with it ;).
So what about Sentinel? (Gotta somehow relate to the subject at hand!!). I am ready to invest in it!!!.. WHEN they are profitable or clearly on the cusp. So… I wait… for each earnings report. My bet is that profitablility for S is still a way off… and I might see yet another doubling in share price with SMCI before that day dawns. BUT… I’d be happy to buy Sentinel.
As long as they’re profitable.
And unless my other companies are doing better.
I try to invest in the very best. And my #1 company gets more money than #5… which gets more more than #10… whoops!.. I don’t have a #10 right now. Sentinel has to be impressive enough to me to persuade me to peel off dollars from my top companies in order to get funded. Yeah… could happen. But it’ll have to steal dollars from my #4, #5 or #6…
Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.
I understand where you are coming from, but it’s not as simple as that.
Let me remind you that with all our tech SaaS stocks that made us so much money in recent years, they made that money for us for the most part when they were small, starting out, growing fast, and not profitable. Back then their stock prices were doubling, tripling, quadrupling, quintupling, sextupling, in price.
They then got re-evaluated, started down, and then really sunk in price, and caused us a lot of heartache when they got big, established, slowed growth, and started making small profits, which have become large profits in some cases but the stock prices have not yet risen commensurably.
I assume from what you are saying that you stayed on the sidelines when they were not making profits and rising like mad, and watched and waited for them to make money.
I’ll say… I didn’t say everything in my post. And I forgive your assumption-ing regarding my past.
The past? Interesting but since it’s past, it’s of limited relevance. Nevertheless, I DID own a bunch of SaaS stocks and did very well… multiplying millions… until things went sideways and the gnashing of teeth started here on this board and elsewhere. I am not proud to say that I lost a higher percentage than almost everybody here (-96%, no thanks to call options!) and lost more money than most ($3mm in UPST alone). Surely, the extent of my losses were my fault entirely… but… just as surely… SaaS investing has not been very kind to folks since late 2021. That’s not news. And that past is of limited relevance.
Does that mean that SaaS is bad? No.
But… my point is this… and I adjusted it to personalize it to your investment history on this board >>>>>>>> Once upon a time, you were investing in LGI Homes… and did well. But you left that and started investing in SaaS. Does that mean that LGI Homes is bad? No… it means that certain investing approaches and certain companies have their time and sometimes it is not “their time”. SaaS was great for “a time”… and stunk for a while. In time, it is likely to be “their time” again due to nice things like high growth, subscriptions and high margins.
Perhaps “their time” is right around the corner for some or even most companies.
But… like your pivot from LGI Homes to SaaS investing… hindsight in it’s useless way… says that maybe other pivots can outperform SaaS investing while SaaS investing is in the dumps. And it has in selected cases. I’m not saying the SaaS baby is ugly… just that other opportunities exist NOW.
I look around this board and I generally see stuff that sums up to “Hey! We see the market likes profits and positive cash flow. And many of our companies are emphasizing their progress toward that stuff called “profits and positive cash flow”. Let’s start talking about… profits and positive cash flow.”
Lo and behold… both the market and this board are talking “profits and positive cash flow”!
Not much talk now sounds like it did before November 2021…when profit was sometimes sneered at and PS over 50 was a shrug. Old timers on this board know this is so. Not criticizing it… just a data point. And I’m saying different circumstances make different evaluation techniques suitable. Anyone who disagrees… please point me to all the current posts lauding expanding losses and expanding PS because it’s all about “land and expand”.
So… here I am. Talking about profits and the benefit of looking at companies that make profits NOW and also… not so incidentally… have high growth and decent margins. Seems on topic to me.
And not a slur on SaaS (may it generally perform well again). And yes, I see that SOME SaaS companies actually have “profits and positive cash flow”. Golly! But it’s just some of them. And my thing is “Hey! Profits now is pretty good! Might even be better than profits “someday”.” And yes, some SaaS has profits NOW… but it isn’t a bad thing to point that out when the thread is about Sentinel… by saying “Hey! Maybe Sentinel is progressing… but it’s nice to have profits NOW.”
So… smile, lean back, breath deeply. I am neither the Borg nor a heretic of SaaS non-good-ly-ness. I even have all my old SaaS companies on my portfolio list… even though the holdings are currently zeroes.
If any of this is heresy or unwelcome, I’ll go back to lurking.
Anyway… that’s “As I said” above.
Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.
SMCI is an interesting position of mine that I opened days ago. Did I miss any discussion on this board about Supermicro? I don’t recall any posts previously. I agree, despite its latest explosive runup, it remains VERY undervalued at still just PE 15, and projected growth of at least another 20% in 2024. It seems like there is plenty of upside…especially if the AI bubble is only just starting to inflate. I wouldn’t want to miss the ride, kind of like Upstart in the summer of 2021 before the Fed hiked.
Although SMCI lacks a real moat, in the short term I believe it will continue to ride the coattails of the AI hype. Will add relevant details I noted from the latest earnings to this later today
There has been some discussion. Not sure if there were dedicated threads and I haven’t tested the Fool search function since The Great Turnover. Good luck!
I don’t see a real moat either, but I can’t argue with success. Not sure as to whether growth will continue for multiple years… I’m just looking at 2023/2024 and I am skeptical of the AI link other than knowing they are using Nvidia chips and uncertain as to whether there is a formal partnership.
Regarding moat… I always remember the repeated comments of “anyone can ship DVDs”… and that Netflix had no moat. Conclusion: Our criteria on many things regarding investing need an open mind.
Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.
