Investing.com -- Shares of SentinelOne (NYSE:S) jumped 5% in pre-open trade on Monday following an upgrade by analysts at Piper Sandler, who revised their rating on the stock to “overweight” from “neutral.”
This reflects an optimistic outlook for the company, fueled by several expectedcatalysts that could drive share price growth as the year progresses.
Analysts at Piper Sandler flag that SentinelOne is positioned to gain incremental market share against competitor CrowdStrike (NASDAQ:CRWD), with early indications suggesting these gains are already starting to materialize.
The analysts believe the current estimates for SentinelOne's near-term performance are overly conservative, particularly after the company provided cautious guidance in its first quarter and only slightly adjusted expectations in the second quarter.
They anticipate that estimates will need to be revised upwards over the next 18 months, as three key factors emerge to support growth.
First, the expansion of SentinelOne's partnership with Lenovo is seen as an opportunity.
Announced in mid-September, this enhanced relationship will integrate SentinelOne's Singularity Platform and Purple AI into new commercial PC shipments, coupled with a new Managed Detection and Response service.
This strategic alignment is expected to benefit from the upcoming refresh cycle of PCs, driven by the end of support for Windows 10 and the rollout of AI-enabled systems.
Second, the recent challenges faced by CrowdStrike due to a global outage have created a potential opportunity for SentinelOne.
As CrowdStrike navigates customer dissatisfaction and possible churn, analysts believe that SentinelOne is well-positioned to capture a portion of this lost business, which has not yet been adequately reflected in current market estimates.
Finally, the early traction seen with SentinelOne's Purple AI is encouraging. Since its general availability in April, Purple AI has contributed positively to revenue, with a double-digit attach rate for new endpoints sold in the second quarter.
The unique automation and threat-hunting capabilities of Purple are expected to differentiate SentinelOne from competitors and serve as a critical growth driver moving forward.
Piper Sandler has increased its price target for SentinelOne shares to $32, which reflects a valuation that they believe is still low given the company’s growth trajectory and leverage potential.
Currently trading at about seven times the expected revenue for the fiscal year 2025, analysts argue that this valuation is modest for one of the fastest-growing entities in the software sector.
Despite the bullish sentiment, Piper Sandler also outlined potential risks that could impede achieving the new price target and recommendation.
These include macroeconomic conditions, competitive pressures, the risk of material data breaches, and potential cash flow challenges.