Hedge Funds are Bullish on This Up and Coming Cyber Security Stock
We recently compiled a list of the 12 Best Up and Coming Stocks To Buy According to Hedge Funds and in this article, we discuss SentinelOne, Inc. (NYSE:S), which is one of the best up-and-coming stocks to buy now.
Despite the concerns surrounding the market over the last few years, the broader market has performed exceptionally well as the S&P 500 reached new record highs crossing 5,300 points by mid-May. While the broader market has been surrounded by bearish sentiment since 2022 and even after its tremendous performance in 2023, many analysts have retracted their statements and are now expecting a positive future. For the year-end 2024, UBS and BMO expect the index to reach 5,600, Wells Fargo predicts that it will close out the year at 5,535 and even one of the most bearish analysts, Morgan Stanley’s Mike Wilson, raised the target to 5,400 from the prior 4,500.
Interest Rate Predictions
Interest rate hikes and cuts have been a major part of discussion in the markets for the last couple of years. In 2023, many analysts predicted up to six cuts in 2024 but the predictions faded over time with hotter-than-expected inflation data. At the Federal Reserve’s May 1 meeting, Chairman Jerome Powell showed hesitation in providing a specific time for any decision on rate cuts and said that the Fed needs more data before taking any step. However, the chairman did hint that the chances of hikes are highly unlikely. Some experts also believe that there may not be a rate cut this year as discussed in our previous article about best soaps and cleaning materials stocks.
According to CME’s FedWatch tool, 98.9% of the market is expecting interest rates to remain the same at the Fed’s June meeting while 1.1% believe that the Fed may raise the rates by 25 basis points (bps). Morgan Stanley predicts rate cuts to start in September at 25 basis points as they expect that inflation will begin to decline which could give the Fed enough confidence to start cutting rates. The FedWatch tool reveals that in September, 51.6% of the market isn’t expecting any rate cuts, 42.8% expects a 25 bps reduction, 5% expect rates to be cut by 50 bps and 0.6% believe that the rates will be 25 bps higher than the current levels of 5.25% to 5.5%.
Market Upside Potential Amidst Tightening Policies
Recently, we have seen another pullback in the market as the broader market has contracted by 1.5% between May 27 to 30. However, some experts still expect an upside and believe that the market is in healthy condition.
On May 29, former chief investment strategist for The Leuthold Group and Wells Capital Management, Jim Paulsen told CNBC that he is optimistic about the economy and highlighted its resilience despite previous recession predictions and challenges like inverted yield curves. He noted the strength of corporate balance sheets, overall economic health, liquidity, and positive recent earnings reports. He also acknowledged that tightening policies such as higher yields, a stronger dollar, a lower fiscal deficit to GDP ratio, modest monetary growth, and balance sheet contraction will eventually slow the economy and reduce inflation. Paulsen predicts that inflation will fall below 3%, creating favorable conditions for the market and suggesting potential for further upside. Moreover, Paulsen noted that the inflation has indeed come down if we compare it to 2022’s 9% and added that he does not think that the Fed target of 2% inflation is needed for “things to be good.”
Hedge Funds are Bullish on This Up and Coming Cyber Security Stock
Our Methodology
For this article, we used the Yahoo Finance stock screener to identify over 400 stocks that have experienced revenue growth of at least 40% year-over-year and have a market cap of above $300 million. We then narrowed down our list to 12 stocks that have seen growth in hedge fund sentiment between the fourth quarter of 2023 and the first quarter of 2024, have positive analyst sentiment, and have consistent revenue growth. We listed the best up and coming stocks in ascending order of their hedge fund sentiment.
The hedge fund data was taken from Insider Monkey’s database of 919 elite hedge funds as of the first quarter of 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple, our research has shown that we can outperform the market by imitating the top stock picks of best hedge funds. Our quarterly newsletter’s strategy picks 14 small and large-caps every quarter and it has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Hedge Funds are Bullish on This Up and Coming Cyber Security Stock
SentinelOne, Inc. (NYSE:S)
Year-over-Year Revenue Growth in FQ3 2024: 42.4%
Year-over-Year Revenue Growth in FQ4 2024: 38.2%
Year-over-Year Revenue Growth in FQ1 2025: 39.7%
Number of Hedge Fund Holders: 36
SentinelOne, Inc. (NYSE:S) is a cybersecurity provider and its offerings include its Singularity Platform, endpoint protection, attack surface management, and more. SentinelOne, Inc. (NYSE:S) was held by 36 hedge funds in the first quarter and the stakes amounted to $627.690 million. Of those, Eminence Capital was the top shareholder of the company and held a position worth $128.603 million.
On May 30, SentinelOne, Inc. (NYSE:S) announced its first-quarter earnings. The company beat EPS estimates by $0.05 and its revenue of $186.36 million grew by 39.7% year-over-year and topped the estimates by $5.3 million. The company also achieved a gross margin increase to a record high of 79%, which showcases sustained and significant margin improvements over consecutive quarters. According to the company management, SentinelOne, Inc. (NYSE:S) is expanding its market presence, with notable growth in its customer base. The number of customers with more than $100,000 in annual recurring revenue (ARR) grew by 30% year-over-year, and those with over $1 million in ARR reached a new company record. The company’s platform adoption and success with larger enterprises are driving double-digit increases in ARR per customer.
Baron Discovery Fund stated the following regarding SentinelOne, Inc. (NYSE:S) in its fourth quarter 2023 investor letter:
“SentinelOne, Inc. (NYSE:S) is a cybersecurity software company that specializes in endpoint protection, cloud security, and security data analytics. Shares rose on outstanding quarterly financial results and strong guidance. SentinelOne is one of the fastest growing public cybersecurity companies, with revenue expected to grow more than 46% this fiscal year. Growth has been driven by a combination of: 1) market share capture from legacy endpoint vendors that struggle to compete against SentinelOne’s AI-enabled platform; 2) an ongoing shift of Information Technology (IT) infrastructure to the cloud driving demand for cloud application protection (growing triple digits); and 3) cybersecurity vendor consolidation favoring end-to-end platforms with comprehensive security portfolios over single-point solutions. The company is also leveraging its single data store and AI capabilities to cross-sell more products into its existing customer base and increase average sale prices. Between larger deal sizes and improving operating efficiencies, we believe the company can continue to expand margins at a significant rate and begin generating positive free cash flow in the next fiscal year.”
SentinelOne, Inc. (NYSE:S) takes the seventh spot on our list of best up-and-coming stocks to buy. To find other up-and-coming stocks that hedge funds and analysts like, check out our free report on the 12 Best Up and Coming Stocks To Buy According to Hedge Funds.
Our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article is originally published on Insider Monkey.
