Accelerating cybersecurity threats across enterprises that have emerged with the ongoing digital transformation wave driven by the COVID-19 crisis have bolstered demand for SailPoint Technologies Holdings’ (SAIL) Identity Management solutions. SAIL’s services aim to ensure that only authorized individuals can access specific corporate systems.

As a market leader in this space, SAIL’s stock has returned a whopping 127.4% over the past year.

SAIL offers a mixture of licenses to companies that run their own IT infrastructures, software-as-a-service (SaaS) subscription for companies that execute their computing in the cloud, and a mixture of the two for customers with so-called hybrid environments, blending on-premises and cloud-based computing.

Let’s take a closer look at the factors that could influence SAIL’s performance in the near term:

Unabated Strategic Expansions

On February 22, SAIL completed the acquisition of Intello, an early-stage SaaS management company that helps organizations discover, manage, and secure SaaS applications. With the acquisition, SAIL customers will soon have deeper visibility and a broader understanding of the full scope of their ungoverned SaaS applications, helping them to drive a seamless process from discovery to governance across the entirety of their SaaS app landscape. In addition,  SAIL expanded into Japan last week. The company opened its first office in the country to address a rapidly growing demand for identity security in the region.

Impressive Financials

In the fourth quarter (ended December 31, 2020), SAIL’s revenues increased 16% year-over-year to $103.3 million, marking the largest quarterly revenue generation in the company’s history. Its subscription revenue came in at $56 million, improving 38% over the prior year. Conversely, however, its license revenue declined 10% year-over-year to $34.1 million. Its total annual recurring revenue (ARR) on December 31, 2020 was $251.0 million, rising 40% year-over-year. However, SAIL reported a loss of $0.05 per share, compared to a year-ago loss of $0.06 per share.

Mixed Analyst Sentiment

Wall Street analysts expect SAIL’s revenue to increase 20.9% in the current quarter, 12.5% in the current year and 15.3% next year. However, the company’s EPS is expected to decline 100% in the current quarter, 107.3% in the current year, but then improve 300% next year.

Analysts expect the stock to hit$52.64 in the near term, which indicates a potential upside of a mere 4%.

Stretched Valuation

SAIL had  an incredible run over the past year, returning a  whopping 127.4% over this period. As a result, the stock is now perceived as severely overvalued by traditional measures. In terms of its trailing-twelve-months p/e, SAIL is currently trading at 130.47x, 388.7% higher than the industry average  26.70x. In terms of its trailing-12-month p/s also, SAIL’s 10.27x is significantly higher than the industry average  4.58x.

POWR Ratings Indicate Ambiguous Prospects 

SAIL has an overall rating of C, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, SAIL has a grade of B for Momentum, in line with its market beating returns over the past year.

However, SAIL has a Value Grade of C, consistent with the stock’s higher-than-industry valuation multiples. In addition , SAIL has a C grade for Stability, indicating that the stock is relatively more volatile than its peers.

Out of 24 stocks in the B-rated Software – Security industry, SAIL is ranked #13.

Beyond what I stated above, we also have given SAIL grades for Growth, Stability and Quality. Get all the SAIL ratings here.

If you’re looking for better stocks in the Software – Security group, with an Overall POWR Rating of A or B, you can access them here.

Bottom Line

The ongoing adoption of hybrid work structures  by companies is increasing the need for  cloud solutions and integrated security. Consequently,  market experts anticipate an acceleration of cybersecurity spending this year as more governments and businesses work from home and adopt cloud technology.

Organizations worldwide  are shedding outdated systems and accelerating their move to modern cloud-native technologies to meet the demands of today’s threat landscape. As a result, SAIL has recently released additional functionality to its platform and introduced its new SailPoint Developer Community that helps customers embed identity security into their digital ecosystem.

SAIL has been consistently improving its product offerings and working on a blend of organic and inorganic expansion strategies. However, despite witnessing such unprecedented demand for its services, especially its identity management platform, SAIL remained unprofitable in 2020 and reported a loss greater than the prior year. So, the positive developments do not adequately justify SAIL’s premium valuation and the shares may witness profit bookings in the near-term. We believe investors should Hold the stock for a while and wait for a better entry point for fresh buying.

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SAIL shares were trading at $53.40 per share on Tuesday afternoon, up $2.80 (+5.53%). Year-to-date, SAIL has gained 0.30%, versus a 4.18% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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