Is Now the Perfect Time to Invest in CrowdStrike?

June 19, 2024 at 03:14 AM EDT

CrowdStrike (CRWD) delivered stellar first-quarter performance, beating analyst estimates on both top and bottom lines. Despite a bright long-term growth outlook supported by solid market demand, strategic initiatives, and robust financial health, the cybersecurity firm faces challenges with regulatory compliance and intense competition. So, let’s find out if it’s the right time to invest in this stock...

CrowdStrike Holdings, Inc. (CRWD), a prominent cybersecurity solutions provider, reported first-quarter 2025 financial results that surpassed Wall Street estimates. The company’s revenue totaled $921.04 million, beating analysts’ expectations of $904.82 million. Subscription revenue grew 33.9% year-over-year, and professional services revenue rose 18%.

CRWD posted first-quarter non-GAAP EPS of $0.93, above the consensus estimate of $0.89. Notably, the cybersecurity firm’s annual recurring revenue (ARR) increased 33% year-over-year to $3.65 billion as of April 30, 2024, of which $211.7 million was net new ARR added in the quarter.

Moreover, the Falcon platform’s distinctive architecture establishes a significant competitive advantage, allowing CrowdStrike to effectively address major cybersecurity, IT, and data problems. Customers across various scales are standardizing on the Falcon platform to achieve better security results and reduce their total cost of ownership (TCO).

Commenting on the company’s strong quarterly results, Burt Podbere, CRWD’s chief financial officer, said, "The CrowdStrike team delivered another exceptional quarter driven by strong execution and platform adoption as customers increasingly consolidate on the Falcon platform.”

“In addition to our strong top-line performance, financial highlights included record gross margin, significant year-over-year operating leverage, record free cash flow of $322 million or 35% of revenue and a rule of 68 on a free cash flow basis, showcasing our focus on profitably scaling the business to $10 billion ending ARR and beyond,” Podbere added.

As per the guidance for the second quarter of fiscal 2025, CRWD expects total revenue between $958.30 million and $961.20 million. Its non-GAAP income from operations is anticipated to be $208.30 million - $210.50 million. Non-GAAP net income attributable to CrowdStrike is expected to be $245.70 million - $247.80 million and $0.98 - $0.99 per share.

Further, the company raised its outlook for fiscal year 2025. CRWD expects total revenue of $3.98 billion - $4.01 billion. Its non-GAAP income from operations is expected to range from $890.10 million to $916.50 million. Non-GAAP net income attributable to CrowdStrike is expected to be $985.60 million - $1.01 billion, or $3.93 - $4.03 per share.

Shares of CRWD have gained 49.9% over the past six months and 156.1% over the past year to close its last trading session at $389.51. Moreover, the stock is up 11.5% over the past month.

Let’s look at factors that could influence CRWD’s performance in the upcoming months.

Positive Recent Developments

On June 18, CRWD partnered with Hewlett Packed Enterprise (HPE) to secure end-to-end AI innovation, such as large language models (LLMs), accelerated by NVIDIA Corporation (NVDA). Integrating the Falcon platform with HPE GreenLake cloud and OpsRamp AIOps unifies security and IT teams in monitoring accelerated AI workload IT alerts and adversary activity.

On May 30, CrowdStrike and Cloudflare, Inc. (NET), a leading connectivity cloud company, expanded their strategic partnership to secure networks and power the AI-native Security Operations Center (SOC).

The alliance combines market-leading Zero Trust protection and connectivity from Cloudflare One™ with best-in-class AI-native cybersecurity from CrowdStrike Falcon® Next-Gen SIEM on the Falcon® platform, accelerating partners’ ability to drive vendor consolidation by securing the network and stopping breaches across device endpoints, cloud, data, and applications.

Further, in May, CRWD expanded a distribution partnership with Ignition Technology to drive cybersecurity transformation in the Nordics. This collaboration brings the AI-native CrowdStrike Falcon® cybersecurity platform to Ignition’s Nordic partner network in Denmark, Sweden, Norway, Finland, and Iceland, driving vendor consolidation and powering security solutions.

Daniel Bernard, CrowdStrike’s Chief Business Officer, said, "Growing strategic partnerships with leading industry innovators like Ignition Technology is how we change the game and scale, accelerating our partner-first go-to-market. We’re excited to expand our engagement with the Ignition Technology team in the Nordics."

Outstanding Financial Performance

During the first quarter that ended April 30, 2024, CRWD’s total revenue increased 33% from the prior year’s period to $921.04 million. Its gross profit rose 33% from the year-ago value to $696.03 million. Its non-GAAP income from operations was $198.74 million, up 71.5% year-over-year.

Additionally, non-GAAP net income attributable to CrowdStrike came in at $231.67 million and $0.93 per share, increases of 69.9% and 63.2% from the previous year’s quarter, respectively. Its free cash flow grew 41.8% year-over-year to $322.46 million. As of April 30, 2024, its total assets totaled $6.84 billion, compared to $6.65 billion as of January 31, 2024.

Impressive Historical Growth

CRWD’s revenue has grown at a CAGR of 48.7% over the past three years. Its tangible book value has increased at a CAGR of 63.4% over the same period. Furthermore, the company’s total assets have improved at a CAGR of 33.4% over the same time frame, and its levered free cash flow has grown at a CAGR of 33.9%.

Optimistic Analyst Estimates

Analysts expect CRWD’s revenue for the second quarter (ending July 2024) to increase 31.4% year-over-year to $961.06 million. The consensus EPS estimate of $0.99 for the current quarter reflects a 33.1% year-over-year improvement. Moreover, the company has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is remarkable.

Further, Street expects the company’s revenue and EPS for the fiscal year (ending January 2025) to grow 30.9% and 29.9% from the previous year to $4 billion and $4.01, respectively. For the fiscal year 2026, CrowdStrike’s revenue and EPS are expected to increase 26.4% and 22.9% year-over-year to $5.06 billion and $4.93, respectively.

Stretched Valuation

In terms of forward non-GAAP P/E, CRWD is trading at 97.29x, 310.5% higher than the industry average of 23.70x. Moreover, the stock’s forward EV/Sales of 23.03x is 683.2% higher than the industry average of 2.94x. Also, its forward EV/EBITDA of 86.91x is 497% higher than the 14.56x industry average.

In addition, the stock’s forward Price/Sales and Price/Cash Flow multiples of 23.75 and 65.81 are considerably higher than the industry averages of 2.88 and 23.45, respectively.

Mixed Profitability

CRWD’s trailing-12-month gross profit margin of 75.29% is 51.6% higher than the industry average of 49.66%. Likewise, its trailing-12-month net income margin is 39% higher than the 2.88% industry average. Also, the stock’s trailing-12-month ROCE and ROTA of 6.36% and 1.92% are favorably compared to the 4.20% and 1.72% industry averages, respectively.

However, the stock’s trailing-12-month EBIT margin of 0.74% is 84.2% lower than the industry average of 4.69%. Similarly, its trailing-12-month ROTC of 0.53% is 80.2% lower than the industry average of 2.65%.

POWR Ratings Reflect Uncertainty

CRWD’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to a Neutral in our proprietary 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 distinct categories. CRWD has an A grade for Growth and a B for Sentiment, in sync with its solid financial performance in the last reported quarter and favorable analyst expectations.

However, the stock has an F grade for Value, consistent with its higher-than-industry valuation. Also, CRWD has a D grade for Stability. The stock’s 24-month beta of 1.79 justifies its Stability grade.

CRWD is ranked #11 out of 23 stocks in the B-rated Software – Security industry.

Beyond what I have stated above, we have also given CRWD grades for Momentum and Quality. Get access to all the CRWD ratings here.

Bottom Line

CRWD delivered exceptional performance in the first quarter of 2025, driven by solid execution and platform adoption as customers increasingly consolidate on the Falcon platform. Moreover, the company’s long-term growth outlook seems bright due to strong market demand for its innovative product offerings, strategic initiatives, and business model scalability.

Despite its promising prospects, CrowdStrike faces hurdles in the cybersecurity landscape, like rigid competition and strict compliance with data protection regulations, including GDPR and CCPA. While global expansion offers growth opportunities, it also presents challenges such as navigating diverse regulatory environments and adapting to local market needs.

Considering CRWD’s elevated valuation and uncertain near-term growth outlook, waiting for a better entry point in this stock seems wise now.

Stocks to Consider Instead of CrowdStrike Holdings, Inc. (CRWD)

Given its near-term uncertain prospects, the odds of CRWD outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these three A (Strong Buy) or B (Buy) stocks from the Software – Security industry instead:

Darktrace plc (DRKTY)

Trend Micro Incorporated (TMICY)

OneSpan Inc. (OSPN)

For exploring more A and B-rated cybersecurity stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

CRWD shares were unchanged in premarket trading Wednesday. Year-to-date, CRWD has gained 52.56%, versus a 15.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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