TRADE ALERT: SELL SentinelOne; What I Got Wrong
I let optimism cloud my judgment and held on too long. I focused too much on free cash flow and ignored the lack of topline momentum.
Executive Summary
I made a mistake owning—and recommending—SentinelOne (S).
Last Wednesday, I laid out my stance plainly:
If this isn’t the growth story I thought it was, then I’m out.
And like I said back on May 2nd:
In that post, I explained that I succeed by owning my mistakes—cutting underperformers quickly and focusing on what comes next, not what I paid in the past.
My job isn’t to sugarcoat bad calls. My job is to outperform. That means making tough decisions.
The easy path would be to defend the call and pretend.
But I’m too focused on my outperformance to play that game.
So here’s why I’m recommending we sell SentinelOne today.
SentinelOne's Challenge
SentinelOne builds cybersecurity software that protects businesses from hackers and cyberattacks. What makes them special is their use of AI—their platform, Singularity, detects and responds to threats in real time, with less need for large security teams.
It’s built to be powerful yet easy to use, whether you’re a mid-sized business or a large enterprise.
But there’s a big issue: CrowdStrike is larger, better-known, and often wins out when enterprises choose a provider.And to make things worse, some sales slipped in April when customers got nervous about the economy—hurting them in a crucial quarter.
They're also facing the challenge of proving they’re not just a cheaper alternative, but a truly better one.
So, what's the guidance?
SentinelOne Downgrades Revenue Growth Rates
I hold myself accountable. That’s why I outperform.
But this one hurt: I spent 18 months backing SentinelOne—and it was a mistake.
Looking back, I should have called it quits last quarter. I gave them too much leeway. I should’ve salvaged what I could and moved on.
This is supposed to be a growth company. I paid a premium for high growth, expecting strong, consistent beats. But I let my optimism cloud the reality.
I convinced myself they could hit 30% year-over-year growth, like CrowdStrike did early on. And since they were smaller, I thought that growth should come easier. Especially with easier comps.
But I was wrong. Worse still, management pulled their revenue guidance—and that’s a cardinal sin for a growth company.
S Stock Valuation -- 60x Forward Free Cash Flow
As an Inflection investor, I liked SentinelOne’s clean balance sheet. No debt. Over $750 million in cash and marketable securities, even before counting $400 million in long-term investments.
All that cash made me overlook some key problems.
To be fair, the company is making real progress on free cash flow.They’ve said their free cash flow margins will exceed their non-GAAP operating margins by a few percentage points this fiscal year.
True to form, the business is rapidly increasing its free cash flow, see below.
In fiscal Q1 2026, free cash flow grew 35% y/y. That gives me some confidence they can hit $100 million in free cash flow by early next year.
But without strong topline growth, the business simply can’t support its high valuation.
Even though the stock is cheaper than it’s been in a while, the upside is limited—and the risks are growing.
Paying 60x forward free cash flow for a company with slowing revenue isn’t the kind of setup I’m willing to stick with.
Right now, its adjusted PEG ratio sits around 2.4x—not outrageously expensive, but too lukewarm.
Risk Factors to the Upside
To be clear, not everything is going wrong.
A lot of bad news is already priced in. I wouldn’t be shocked if SentinelOne trades above $20 in 30 days once things calm down.
They are improving profitability, with record free cash flow. They’re also starting to win bigger contracts with large companies and government agencies.
But here’s the thing:I only want to invest in companies where I have high conviction.
Lukewarm ideas lead to lukewarm results. Top ideas drive top performance.
The Bottom Line
I take full responsibility for dragging paying subscribers into this stock.
I let SentinelOne’s clean balance sheet and improving free cash flow blind me to the bigger picture—its slowing revenue growth and downgraded guidance.
I ignored the warning signs because I wanted it to work. That’s on me.
This is not what a high-multiple growth investment should look like, and I should have exited sooner. You trusted me to make sharp, conviction-driven calls—and here, I fell short.