The sudden shift to remote working and studying amid the COVID-19 pandemic boosted the demand for software and services that prevent cyber breaches. SailPoint Technologies Holdings (SAIL), which provides identity security solutions to enterprises, is one of those many companies in the technology space that benefitted from the abrupt rise in demand.
Thanks to the stellar demand, SailPoint stock increased by 125.6% in 2020. The company’s CEO, Mark McClain, highlighted “continued strong demand for SailPoint’s identity platform” and “pandemic accelerated digital transformation” as catalysts for the strong growth in its financials, which pushed its stock price higher.
Come 2021, easing of social distancing norms, expected normalization in growth rate, and tough year-over-year comparisons are taking a toll on the stock prices of tech companies, including SailPoint, that gained significantly due to the pandemic-led demand.
Furthermore, SailPoint’s transition to SaaS (software as a service) and subscription business model are creating revenue and earnings headwinds in the short-term, which are, in turn, hurting its stock. SailPoint stock has erased a considerable portion of its gains and is down over 15% this year. (See SailPoint Technologies Holdings stock charts on TipRanks)
While SailPoint’s top and bottom lines are witnessing compression, Alex Henderson of Needham expects the transition to strengthen the company’s competitive positioning and drive increased value to customers and shareholders.
Henderson commented, “We think as the shifts to Subscription and Cloud mature, there is considerable upside to the valuation to align with other comparable paced growth Subscription names.”
SailPoint recently delivered better-than-expected Q2 results. However, its Q3 earnings guidance fell short of the Street’s estimates. The company expects to report a loss in the range of $0.06 to $0.07 per share in Q3. In comparison, analysts expected guidance of a loss of $0.03 a share.
In response to its Q2 earnings, Henderson said, “The EPS guidance for CY2H may also have disappointed some investors. Not us.” The 5-star analyst is upbeat on SailPoint’s aggressive hiring and stepped-up investments and sees these as the “right strategic move” which could “drive superior future growth.”
Along with Henderson, the majority of the Street is also bullish on SAIL. The Strong Buy consensus rating is based on 7 Buys and 1 Hold. The average SailPoint Technologies Holdings price target of $63.43 implies 40.6% upside potential to current levels.
Disclosure: Amit Singh held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
