In this piece, I used TipRanks’ comparison tool to evaluate two cybersecurity stocks, CrowdStrike Holdings (NASDAQ:CRWD) and SentinelOne (NYSE:S), to determine which is better. Both companies are bleeding cash and growing fast, although CrowdStrike is at a much later stage than SentinelOne. Nonetheless, I am neutral on both stocks.
CrowdStrike stock is up 18.9% year-to-date, while SentinelOne stock has lost 3.6%, so is there any near-term upside for these unprofitable companies? While cybersecurity is sure to be a bit more recession-resistant than some other sectors, a closer look at both is in order.
CrowdStrike Holdings (NASDAQ:CRWD)
With its steady track record of revenue and earnings beats, it’s easy to see why the market loves CrowdStrike. On the one hand, the company is growing its revenue rapidly despite its large scale. However, on the other hand, its large scale ($2.24 billion in revenue for Fiscal 2023) and rapid growth have me wondering when or even if it will ever turn a profit. Given Wall Street’s love affair with CrowdStrike, a neutral view seems appropriate despite the many problems.
While CrowdStrike is profitable on an adjusted, non-GAAP (generally accepted accounting principles) basis, it is not profitable on a GAAP basis, which represents true profitability without any adjustments. In fact, the company doesn’t appear to have even shared a timeline for profitability, which is a cause for concern.
Additionally, CrowdStrike’s losses tend to widen at different times. For example, in its most recently reported quarter, its GAAP net loss widened from $42 million in the year-ago quarter to $47.5 million in the latest quarter. On a full-year basis, though, the company did trim its GAAP net loss from $234.8 million in Fiscal 2022 to $183.2 million in Fiscal 2023. Time will tell whether this trend holds.
Another concern for CrowdStrike is that insiders have sold over $9.3 million worth of shares over the last three months, while hedge funds dumped 4.5 million shares in the last quarter. Still, the strength and popularity of its products suggest that CrowdStrike may have a bright future over the long term.
In the meantime, the market has shown an immense desire for unprofitable, growth-at-any-cost companies this year. A return to a stock market regime in which growth at all costs again becomes the theme of the day could boost shares.
However, we’re not there yet, and fundamental investors might want to look elsewhere. With a price-to-sales (P/S) ratio of 13 times, CrowdStrike isn’t particularly cheap.
What is the Price Target for CrowdStrike Stock?
CrowdStrike Holdings has a Strong Buy consensus rating based on 27 Buys, three Holds, and zero Sell ratings assigned over the last three months. At $162, the average CrowdStrike Holdings stock price target implies upside potential of 32.6%.
SentinelOne (NYSE:S)
SentinelOne has been maintaining triple-digit revenue growth since it went public in July 2021, so it’s clear why the market loves it. However, the company’s lack of profitability, small scale, and high P/S multiple of about 11.1 times suggest a neutral view might be appropriate for now, potentially pending a better entry point.
Unfortunately, SentinelOne isn’t even profitable on a non-GAAP, adjusted basis, so it has much further to go than CRWD. While management expects the company to be profitable by 2025, it seems likely that they’re referring to non-GAAP profitability. This is certainly something investors might want to monitor, especially those who are waiting for a better entry point.
Also, hedge funds added over 10 million shares of SentinelOne to their holdings, suggesting that they do see long-term value in the company.
In the best-case scenario, SentinelOne could be a long-term buy-and-hold stock, but any potential bull thesis for the shares will take a long time to play out. For now, investors might want to consider whether a company with only $361.7 million in revenue for the last 12 months deserves a market capitalization of $4 billion.
What is the Price Target for SentinelOne Stock?
SentinelOne has a Moderate Buy consensus rating based on six Buys, eight Holds, and zero Sell ratings assigned over the last three months. At $17.43, the average SentinelOne stock price target implies upside potential of 24.5%.
Conclusion: Neutral on CRWD and S
It’s starting to look like some investors are rotating back out of value stocks and into growth names, which would benefit both CrowdStrike and SentinelOne. Both companies are strong with robust top-line growth, but their lack of profitability should give fundamental investors pause. Thus, it might be a good time to remain on the sidelines with one or both of these companies, pending a potentially better entry point.
