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Why CrowdStrike Stock Just Popped 5%

By Rich Smith - Jan 7, 2021 at 1:05PM

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Wall Street gave the security specialist back-to-back endorsements this week.

What happened

Investors in CrowdStrike Holdings ( CRWD -3.31% ) are having a good week. After starting Monday at a share price barely above $200, shares of the cybersecurity specialist are up nearly 10% in four days of trading, including a 5% bump through 11:55 a.m. EST today.

You can address your thank-you notes to Wall Street's investment banks.

Arrow angles up on a green stock chart

Image source: Getty Images.

So what

Specifically, to investment bankers Piper Sandler and Barclays Capital. On Tuesday, Piper started off CrowdStrike's rally when it raised its target price on CrowdStrike by 33%, from $180 to $240 a share, reports TheFly.com. One day later, Barclays chimed in with a price target hike of its own -- only to $221, admittedly, but that was still 6% more than what the stock was trading for at the time.

In its note, Piper described CrowdStrike as the "best of breed" security platform and said the company is winning contracts over the competition. It also predicted CrowdStrike will enjoy "outsized growth" this year. Barclays' note might not have been quite as optimistic as that, but like Piper, the British banker did at least reiterate an overweight (i.e., buy) rating on the shares.

Now what

I won't dispute the analysts' qualitative assessments of CrowdStrike, but I do have to take issue with their assertion that CrowdStrike stock is undervalued.

Historically unprofitable, CrowdStrike is a powerful cash generator, churning out $255 million in positive free cash flow over the past year. Regardless, at a current valuation exceeding $48 billion, CrowdStrike shares sell for just under 190 times free cash flow. No matter how fast the stock is growing, and no matter how "best" it might be of its "breed," that valuation is simply unrealistic -- and sooner or later, CrowdStrike stock is destined to fall.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

CrowdStrike Holdings, Inc. Stock Quote
CrowdStrike Holdings, Inc.
CRWD
$217.14 (-3.31%) $-7.43

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