Cybersecurity company CrowdStrike (NASDAQ:CRWD) has been renowned for its Falcon platform that provides endpoint protection and threat intelligence. However, the stock has faced significant challenges recently, plummeting over 35% in two weeks. This decline started after a software update caused widespread disruptions.
As we write, CRWD stock is trading around $217, down 15% year-to-date (YTD). It is about 45% below its 52-week high reached on July 9, 2024. This underperformance is in stark comparison to the First Trust NASDAQ Cybersecurity ETF (NASDAQ:CIBR), which has only declined about 1% YTD.
Yet, given the rotation out of tech shares, we believe the current lows may not be the bottom for CRWD stock. Nonetheless, seasoned investors know that such a strong correction cannot last forever. CrowdStrike will likely rebound once the current negative sentiment shifts. Therefore, a cautious approach is advised in the short term, but CRWD’s long-term prospects make it a promising investment.
Recent Challenges for CRWD Stock
On July 19, an upgrade glitch in CrowdStrike’s Falcon Sensor platform led to significant operational disruptions worldwide. Many computer users worldwide saw the infamous “blue screen of death” on Microsoft (NASDAQ:MSFT) Windows systems. This unexpected issue has meant an estimated $5.4 billion loss for Fortune 500 companies, excluding Microsoft.
CrowdStrike’s CEO stated that the issue was a software defect rather than a security breach. Yet, the incident has sparked concerns about the company’s technological stability. There are also potential litigation risks for CrowdStrike and even Microsoft. Delta Air Lines (NYSE:DAL), whose operations were severely impacted by the outage, is looking to pursue damages of up to $500 million. Other companies are likely to take legal moves against the cybersecurity company. In addition, a class action lawsuit against CrowdStrike has been filed by shareholders.
Such legal entanglement is likely to increase CrowdStrike’s risk profile, contributing to ongoing stock volatility. However, despite the recent decline, we believe CRWD stock remains overvalued from a fundamental perspective. Its price-to-earnings (P/E) ratio of 402.8x, price-to-book (P/B) ratio of 20.9x, and price-to-sales (P/S) ratio of 16.1x are all significantly higher than its industry peers. Such levels suggest bearish sentiment could easily continue in the short term.
Those investors who also follow technical charts will likely note that CRWD stock could easily dip below $200, with the potential to fall toward $175. Although various technical indicators are signaling that CRWD stock is nearing oversold conditions, a stock can stay oversold for quite a while. Therefore, we expect the choppiness in CrowdStrike shares to continue in August as well. When the decline is finally over, CRWD stock will likely consolidate within a 7-8% range before beginning a new upward trend.
Robust Earnings and Long-Term Promising Prospects for CRWD Stock
Despite these challenges, CrowdStrike’s fundamentals still remain robust. Its platform addresses critical cybersecurity risks. Recent data shows a staggering 30% increase in global cyberattacks in the second quarter of 2024 compared to the previous year. Organizations have faced an average of over 1,600 attacks weekly, or about one every six minutes. Thus, there is a growing necessity for resilient cybersecurity solutions like those offered by CrowdStrike.
In its first-quarter earnings for fiscal 2025, CrowdStrike reported total revenue of $921 million, reflecting a 33% year-over-year (YOY) growth. Annual Recurring Revenue (ARR) also grew by 33% YOY to $3.65 billion, with new ARR of $211.7 million added in the quarter. The company’s non-GAAP subscription gross margin remained strong at 80%, and adjusted diluted EPS rose to $0.93 from $0.57 in the previous year. As of April 30, CrowdStrike had $3.70 billion in cash and equivalents, positioning it well for future growth.
The global cybersecurity market, valued at $172.2 billion in 2023, is projected to expand to $562.7 billion by 2032, driven by technological advancements and the rise of e-commerce platforms. With a growing customer base and an expansive product portfolio, CrowdStrike is poised for sustained long-term gains. Thus, for long-term investors, CRWD stock still looks like a robust investment. However, they could wait for a more favorable entry point into CRWD shares.
Cautious Optimism in CRWD Stock
In conclusion, despite the recent events, CrowdStrike is still at the forefront of cloud-native endpoint security. However, the stock has experienced significant short-term volatility, complicating immediate investment decisions. Given ongoing negative investor sentiment and potential legal challenges, now may not be the ideal time to buy CRWD stock.
A longer-term technical outlook suggests an initial decline toward $200, with the possibility of falling to $175 if broader market conditions worsen. Despite these near-term challenges, Crowdstrike’s strong competitive position and promising growth prospects make it a compelling long-term investment. Analysts maintain a positive long-term sentiment, with a 12-month median price forecast of $358.37 for CRWD stock, implying a significant upside potential of nearly 65%. For those willing to navigate the volatility, buying the dips below $200 could be a prudent strategy.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Tezcan Gecgil 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.
