Shares of CrowdStrike (NASDAQ:CRWD) stock, a company that provides cloud-delivered cybersecurity products and services jumped 2% at the opening of stock market trading today when Nasdaq continues to decline with losses of more than 1% within the first trading hour. Why CRWD stock outperforms Nasdaq today?
An article on Barron’s has mentioned an encouraging outlook about CrowdStrike as the company’s management expressed optimism that it may achieve “more than $5 billion in annual recurring revenue by the 2026 fiscal year.”
There are two main positive factors in this article. First, there has been a revision for the number from $3 billion to $5 billion, a 66% increase. Second, CrowdStrike said it could achieve this number sooner by two years, in 2024. This excitement has a lot of validity, but a look at CrowdStrike fundamentals and valuation tells another story, that supports the fact of finding other cybersecurity stocks to invest in now.
Stock investing should not be too complicated, but simply trying to find profitable companies, that have growth, have a strong balance sheet, and have shares trading at an attractive valuation. Where does CRWD stock fit in these queries?
Why CRWD Stock Is Not Profitable
Profitability is not a strong sector for CrowdStrike as the company is unprofitable and had a widening net loss in FY22 to -$234.8 million compared to a net loss of -$92.63 million in FY21.
What about growth? CrowdStrike has a lot of growth in terms of sales, but it also experiences a period of entering a slowdown in this revenue growth, a third consecutive decline in annual sales growth as of FY20. In FY20, FY21 and FY22 sales growth reported was 92.7%, 81.64%, and 66% respectively. Sales growth is one aspect of growth, there is also the earnings per share (EPS) growth that investors should always monitor.
For business-like cybersecurity that is cloud-based, operating as a software-as-a-service (SaaS) model, it is not irrational to expect that there should be an attractive positive net margin compared to other businesses that rely on external sources like raw materials, oil prices, and other manufacturing costs.
It seems that this rational approach does not apply to the business model of CrowdStrike.
The return on equity (ROE) of CRWD stock for the last twelve months is -24.76%, getting worse rather than improving as in FY21 it was -11.49%. CrowdStrike is not efficient at all in generating profits but does well in providing losses.
The company has a moderate balance sheet strength with a D/E ratio of 0.75 but has a very expensive stock.
A Price to Sales Ratio of 34, and a Price to Book Ratio of 48.8 are not attractive. On the contrary, they both indicate a very rich valuation.
Another important metric of a company’s financial performance, the EV/EBITDA ratio stands at –750.78 for CrowdStrike, a reason to avoid the stock and sell any rallies. CrowdStrike is a textbook example of a company with a great product and not great at all stock, as it is too expensive now.
On the date of publication, Stavros Georgiadis, CFA 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 InvestorPlace.com Publishing Guidelines.
