CrowdStrike and SentinelOne: Cybersecurity Stocks Face Market Turbulence

Is SentinelOne Stock a Buy After Rival CrowdStrike Caused a Global Tech Outage? | The Motley Fool

CrowdStrike's tech blunder might open the door for SentinelOne to benefit. Cybersecurity has become an integral component in today's digitally connected world. It's so significant that when CrowdStrike (CRWD -3.34%) accidentally released a software glitch to its cybersecurity platform, it caused a global tech outage on July 19. CrowdStrike's mistake can contribute to competitors capturing customers who may have otherwise considered the cybersecurity giant. SentinelOne (S -5.55%) is one such potential beneficiary. Its CEO, Tomer Weingarten, has called CrowdStrike his company's "main competitor." SentinelOne shares ticked up after CrowdStrike's tech blunder, suggesting investors believed it, indeed, could benefit. However, the company's ability to perform over the long haul is a more important factor in an investment decision. Here's an analysis of SentinelOne to assess whether the company is a buy beyond the short-term boost gained from CrowdStrike's error. Even if SentinelOne benefits from CrowdStrike's mistake, it didn't need the help. Before CrowdStrike caused a global outage, SentinelOne was already growing rapidly. Just how well its business is expanding is illustrated in its revenue numbers. SentinelOne is attracting customers thanks to its AI-based cybersecurity technology. The company describes its AI platform as "Intelligent, data-driven systems that learn as they are challenged and evolve on their own." Because SentinelOne's tech can operate independently, it provides greater efficiency, simplicity, and cost savings to customers. The company launched its AI cybersecurity tech back in 2013, long before today's AI frenzy. According to SentinelOne, it was first in the world to design and build a cybersecurity platform with AI as its foundation. The firm's technology uses multiple layers of AI that can seamlessly integrate a customer's existing cybersecurity products from other vendors into SentinelOne's system. This reduces a customer's switching costs and eliminates downtime when transitioning to SentinelOne, a selling point that helps the company win clients. The company's platform also takes a unique approach to cybersecurity, employing a software engine that mimics attacks to proactively look for weak areas in a customer's defenses. According to SentinelOne management, no other competitor uses this approach. The cybersecurity company's success in capturing customers has translated into strong financials. Yet despite its financial strength in many areas, SentinelOne isn't profitable. It ended Q1 with a net loss of $70.1 million. But this isn't cause for concern. It's common for high-growth tech companies to sacrifice profit in favor of investing in their business to increase sales. Moreover, the company is moving toward profitability. Its $70.1 million loss in Q1 is a reduction from the prior year's net loss of $106.9 million. Another consideration is SentinelOne stock's valuation. Let's compare it to CrowdStrike using the price-to-sales (P/S) ratio, since SentinelOne's lack of profitability means the price-to-earnings (P/E) ratio commonly used for stock valuation isn't applicable. SentinelOne's substantially lower P/S ratio indicates it's a better value, even after CrowdStrike's share price dropped after the July 19 outage. This, combined with SentinelOne's superb revenue growth, AI-based technology, strong financials such as its transition to positive FCF, and its progress toward profitability, makes the firm a worthwhile long-term investment in the cybersecurity space.

CrowdStrike Crashed More than 30% -- 2 Reasons to Buy the Stock and 1 Reason to Sell | The Motley Fool

Can CrowdStrike win back the confidence of investors and customers? Last month, CrowdStrike (CRWD -3.34%) faced one of technology companies' biggest nightmares: The cybersecurity giant launched a faulty software update that shut down the operations of customers around the world. Experts are calling it the biggest IT outage in history. Companies faced blue error screens and couldn't access data needed to maintain everything from airplane flights to surgery schedules. So business came to a halt. Unsurprisingly, CrowdStrike stock sank, and as of today, it's down more than 30% since the July 19 outage. The company quickly took action, repairing the software problem in just over an hour, but re-establishing customers' systems was a longer process. Today, CrowdStrike says 99% of Windows sensors are online, meaning most systems are operational. This event wasn't due to a security breach, and that's excellent news for CrowdStrike because the company's business is keeping customers safe from cyberattacks. The outage didn't call into question CrowdStrike's ability to do its job. Still, investors are worred about the impact on the company and have hesitated to buy this stock on the dip -- even though it's been a high-growth leader in its field for some time. What should you do right now? Below are two reasons to buy CrowdStrike and one reason to sell. We still don't know the extent of the financial impact of the outage on CrowdStrike. After all, the company could lose customers and may face legal action. For example, Delta Air Lines says the event caused the cancellation of more than 5,000 flights and cost the company as much as $500 million, and now Delta plans to launch a lawsuit seeking damages. At the same time, CrowdStrike's terms and conditions limit liability to customers' "fees paid." Of course, some customers may have signed a contract under different terms -- or legal teams may take a path that leads to additional compensation for their clients. But from the information we have right now, CrowdStrike might not bear a massive financial burden. It's also important to remember that insurance carried by CrowdStrike or its customers may cover certain losses. All of this means that, yes, CrowdStrike will face financial impact from the outage -- and we're likely to see this in the coming quarters -- but it could be manageable. CrowdStrike's entirely cloud-based artificial intelligence (AI)-driven security platform has helped it become a market giant, serving more than 60 Fortune 100 companies as of the fiscal 2025 first quarter. The company held the highest market share for modern endpoint security at more than 17%, as of June 2022, according to an IDC report. Customers have flocked to the company's Falcon platform, available in 28 security modules that can be used together or separately. In the quarter, deals including eight or more modules soared 95%, and module adoption rates were 65% for deals including five or more. All of this has led CrowdStrike's earnings higher over time and in the recent quarter. Annual recurring revenue (ARR) in the three-month period climbed 33% to more than $3.6 billion, and the company generated record operating cash flow and free cash flow, which came in at $383 million and $322 million, respectively. Even if some CrowdStrike customers decide not to renew contracts, the company's market dominance and financial performance suggest it has what it takes to weather the storm. Though I think CrowdStrike's long-term story remains solid, the coming months and even the next year or so might not be easy. The company probably will deal with lawsuits and negotiating compensation with customers -- and it has the big job of winning back the confidence of both customers and investors. At the same time, the stock isn't necessarily cheap, even after recent declines. It trades for 58x forward earnings estimates -- a reasonable price if the outage hadn't occurred but a level that some may consider pricey in light of the near-term uncertainty. These investors may wait for more clarity on how much the outage will impact CrowdStrike's earnings in the coming quarters before getting in on the stock. All this could put the brakes on CrowdStrike's stock performance, so it may not be a growth driver for your portfolio right now. This depends on your comfort with risk. If you're a cautious investor, you might consider avoiding or selling CrowdStrike shares (if you're not selling at a loss). There could be more downs than ups in the coming months. If you can handle risk and are an aggressive investor, though, you may want to scoop up a few shares of this company that boasts an excellent track record of growth with the idea of holding it for at least five years. Considering the two positive points I mention above, there's reason to be optimistic about CrowdStrike's ability to manage today's tough situation and continue delivering growth over the long term.