Should You Buy CrowdStrike Stock After Its Post-Earnings Bounce?

CrowdStrike (NASDAQ:CRWD) stock took a sharp bounce higher after the company posted strong numbers in its fourth-quarter earnings report. However, CrowdStrike investors have seen this before. After reporting a double beat for the third quarter back in December, CRWD stock plummeted to lower lows.

Mobile phone with website of American software company CrowdStrike Holdings (CRWD) Inc. on screen in front of website. Focus on top-center of phone display. Unmodified photo.
Source: T. Schneider /

However, two weeks removed from earnings, it’s so far so good for CRWD stock investors. At the same time, the company’s revenue, while still showing double-digit quarter-over-quarter growth is not what growth investors would like to see. Particularly when CrowdStrike has a generous evaluation.

Demand for cybersecurity services will stay strong. Your decision to buy CRWD stock will depend on how much of the pie the company can capture.

A Spectacular Earnings Report by Any Measure

The cybersecurity company recorded earnings per share of 30 cents which was 10 cents better than estimates. Revenue came in at $431 million which was 4.5% better than estimates.

On a year-over-year basis, the numbers are even more impressive. Earnings were up 161% and revenue was up 66%. And at a time when companies are becoming hesitant to issue forward guidance, CrowdSrike is forecasting their first $2 billion revenue year in 2022.

And if investors even wanted more to celebrate, they could look at the company’s annual recurring revenue (ARR) which came in at $1.73 billion, that was up 65% from the prior year. Free cash flow was also up over 30% at $127.4 million.

Demand Will Remain Strong

Cybersecurity stocks surged higher as companies adjusted to the world of remote work. But many investors believed that demand had peaked. But the Russian invasion of Ukraine is changing the calculus. Cyberattacks will be a primary weapon of warfare in the 21st century. This means that companies are going to need to invest even more to keep their operations secure. And more importantly, these dollars are going to be sticky.

That’s good news for companies like CrowdStrike. CrowdStrike has a cloud-first business that helps enterprise customers move their existing security protocols into the cloud era. This straightforward model is definitely attractive to companies. CrowdStrike does business with 63 of the Fortune 100 companies. And 14 out of the top 20 banks use the company’s software.

CRWD Stock Stands Out in a Crowded Sector

However, as the invasion now becomes a longer slog than first expected, valuation is returning to the forefront. And even cybersecurity stocks have not been spared from the malaise that is settling in for the entire tech sector.

The cautionary note for all cybersecurity stocks is that this is a very crowded sector. So far, there appears to be enough room for everyone. But it does create questions about future growth.

This is particularly true as the company is not profitable on a generally accepted accounting principles (GAAP) basis. And it’s not expected to be profitable until 2024. With competition growing in the sector, it creates some concern about the company’s ability to continue its impressive growth rate.

CRWD Stock May Be Properly Valued

As many investors move to a risk-off posture, valuation is going to draw more attention than ever before. With that said, CrowdStrike appears to be overvalued despite the stock drop. However, if you believe in the company’s future growth prospects, it’s possible that the stock may be slightly undervalued. The company has a strong balance sheet even with a high debt-to-equity ratio.

Analysts seem to agree. Since the earnings report, CrowdStrike has received several bullish calls from analysts. For example, UBS (NYSE:UBS) gave the stock a buy rating with a $285 price target. JPMorgan Chase (NYSE:JPM) also gave the stock a buy rating with a $288 price target. And Deutsche Bank (NYSE:DB) came in with a buy rating and a $240 price target.

Here’s one more thing to consider. Even the analysts that lowered their price targets are still giving CRWD stock a price target that is well above its current level.

On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.

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