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Why CrowdStrike Stock Popped Before Earnings (Again)

By Rich Smith – Sep 1, 2020 at 11:25AM

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Investors love unprofitable CrowdStrike for its revenue growth.

What happened

CrowdStrike (CRWD -1.04%) stock is up 8% through 10:45 a.m. EDT trading Tuesday, a day before the cybersecurity operator is due to report earnings for its fiscal second quarter 2021 (CrowdStrike's financial calendar runs about a year ahead of everyone else's).  

As we've already seen, at least a couple of analysts on Wall Street are feeling bullish on the numbers CrowdStrike will report tomorrow after the close of trading. Today, we heard from a third analyst who is also optimistic -- with caveats.

Rising red stock arrow representing a stock going up drawn on a yellow background

Image source: Getty Images.

So what

Investment bank Jefferies put out a note this morning reiterating its hold rating and $115 price target on CrowdStrike stock. Granted, even a hold rating on a stock that the analyst thinks is worth $115 but that costs more than $135 a share today is pretty curious. And that's actually the point that Jefferies is trying to make.

In today's note, Jefferies calls CrowdStrike "a great company" and "one of the biggest beneficiaries" of the shift to remote work. Nevertheless, with CrowdStrike shares up more than double so far this year, the analyst told today that valuation is its "only issue" with the stock.

Now what

So why is CrowdStrike stock up this morning despite Jefferies' reservations about the price? Apparently, investors are focusing more on the first half of the bank's note, highlighting CrowdStrike's "meteoric" rise and assuming that a "great company" will keep on rising. They're ignoring, however, the potential for this meteor to crash down to Earth if CrowdStrike fails to deliver the 80%-plus growth in revenue that Wall Street analysts will be looking for tomorrow.

Whether this was a risk worth taking should become apparent in under 48 hours.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends CrowdStrike Holdings, Inc. The Motley Fool has a disclosure policy.

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Stocks Mentioned

CrowdStrike Holdings, Inc. Stock Quote
CrowdStrike Holdings, Inc.
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