Is CrowdStrike Stock A Buy?

In just the 10 largest data breaches this year, over 98 million people were affected. In three of these 10 breaches, the affected companies were in the technology sector. It’s companies like CrowdStrike that are working hard to proactively catch would-be cybercriminals before they have the chance to do major damage. The need for protection is reflect in CRWD share price, which went on a run from its lows last year.

Current numbers show CrowdStrike (CRWD) as one of the fastest growing stocks in the cybersecurity segment. CRWD stock price has doubled in the last 12 months, trading at more than 40 times the company’s current year sales.

Is CrowdStrike stock a buy at these levels?

CrowdStrike 101

CrowdStrike is a cybersecurity tech company offering next-gen protection solutions delivered through the cloud.

Founded in 2011, CrowdStrike’s platforms stop breaches by understanding and defending against all types of attacks, while cutting costs and reducing complexity for its customers.

The company harnesses the cloud to analyze billions of endpoint data events around the world, enabling detection and preventing attacks using the company’s patented technology that recognizes behavioral patterns.

Why Are Investors Ok Paying So Much For CRWD?

CRWD share price, riding all-time highs, fell slightly after the company’s most recent earnings call report.

CrowdStrike’s revenue rose to $337.7 million – a 70% YOY growth. This figure also topped analyst estimates by over $14 million. Subscription revenue rose more than 70%, accounting for almost 95% of revenue.

Net income (non-GAAP) skyrocketed almost 230% to $25.9 million, pushing revenue per share to $0.11, which also beat analysts’ $0.09 call. Calculating according to GAAP, however, caused net loss to jump from $29.9 million to over $57 million.

That said, CrowdStrike ended Q2 strong. Balance sheet data shows cash/cash equivalents totaling $1.79 billion. Operations cash flow during Q2 was $108.5 million, and FCF was $73.6 million – 22% of overall revenue. For the first half of 2021, that brings FCF to 30% of revenue.

Now, the reasons why investors love CrowdStrike stock are twofold:

1) Of cloud-native solutions in the cybersecurity field, CRWD has an advantage – older cybersecurity firms install products on-site, whereas CrowdStrike provides all its tools in the cloud, making installations, updates, and scaling much simpler. This approach helps the company lock customers with the original subscription and cross-sell add-ons which fuels their growth.

2) CRWD released its IPO in 2019 and hasn’t stopped growing since. Here’s a breakdown of revenue growth in the years since the IPO:

• 2020 – 93%
• 2021 – 82%
• FY 2022 – 70% so far

Expectations are that revenue will rise as much as 61% for FY 2022.

Subscription customers also rose. CrowdStrike had 5,431 subscribers in FY 2020, 9,896 in FY 2021, which then rose to 13,080 for Q2 of FY 2022.

Of these subscribers, 66% have 4 or more add-ons.

This is what’s driving the company’s annual recurring revenue (ARR) growth. FY 2020 saw $600 million in ARR. Q2 of FY 2022’s ARR is already up to $1.34 billion. Retention has steadily continued above 120% since the IPO.

So, What’s CrowdStrike’s Kryptonite?

CRWD’s growth is certainly impressive. But from a GAAP perspective, it is still not profitable. Net loss saw a wider gap in FY 2020, which narrowed in FY 2021 – then almost tripled YOY in the first half of FY 2022 to over $142 million.

This loss could possibly be credited to:

• The company’s recent acquiring of the cloud-based datalogging company, Humio
• Rising stock-based compensation
• Rising research, development, and marketing expenses

CrowdStrike depends on stock bonuses, which continues upping outstanding shares since the stock’s IPO. This continual dilution might prevent valuations from cooling down.

It’s not all doom and gloom, though. Looking at non-GAAP earnings, CrowdStrike is still in a favorable position. In fact, CRWD reached profitability from a non-GAAP standpoint in FY 2021, and that’s expected to continue for FY 2022 up to 86%.

But CrowdStrike also has a lot of competitors. A smaller rival, SentinelOne (S) offers cloud-based products and traditional on-site services.

SentinelOne claims that CrowdStrike’s cloud-only option isn’t as fast or reliable as a hybrid approach. Another competitor, Palo Alto Networks (PANW) leads the market in firewall hardware built for on-site applications, and continues significantly expanding its cloud- and AI-based services.

CrowdStrike Future Guidance

CRWD remains optimistic that demand will continue to grow. The company’s pipeline is showing record numbers, and other popular trends are simply fuel for the CrowdStrike fire. Given what drives CRWD’s growth and its phenomenal Q2 performance, the company has raised its guidance for FY 2022.

While the company is certainly not backing down from its stance that it still has plenty of room to grow, CRWD doesn’t expect seasonality to be quite as pronounced as previous years due mostly to the recent steady climbs that have been much higher than anticipated.

For FY 2022, CRWD expects its total revenue to be between $1.39 billion and $1.41 billion, which reflects a growth of right around 60% compared to FY 2021.

Income (non-GAAP) is expected to be closer to between $138.5 million and $152.1 million. The company expects its 239 million shares (weighted average) to have a net income per share of between $0.43 and $0.49.

So, Is CrowdStrike Stock a Buy?

CRWD’s IPO price was just $34. In just one day of trading, that stock climbed over 70% to close at $58. Then, the company’s market capitalization of roughly $11 billion seemed crazy – 46 times FY 2019’s sales? The stock was trading at 24 times the company’s FY 2020 sales.

In relation to future sales, CrowdStrike might look a bit on the pricy side, but this stock has risen 365% since that first day of trading. In other words, investors who were worried about this cybersecurity tech firm’s ability to hold muster truly missed out these past couple of years.

This is a company that’s proven it’s got staying power. Tomorrow you could hear the rallying cry that it’s a buy, buy, buy. CrowdStrike’s cylinders are hot, raising full-year guidance two times this year already.

In every quarter since its IPO, the company has beaten analysts’ expectations. CRWD might be pricy and it might be volatile – but if you can hang on for the ride it’s likely to be rewarding. It’s these specific strengths that can justify its current valuation. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.