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Is Crowdstrike Stock a Buy?

By Robert Izquierdo - May 26, 2021 at 8:30AM

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This cybersecurity company has enjoyed excellent growth. Will its success continue?

CrowdStrike Holdings (CRWD -0.86%) delivered phenomenal performance in 2020, leading to its stock price more than tripling from its 52-week low last year to reach a high of over $250 a share in February. The stock is still stubbornly hovering above $200 at the time of this writing, despite the broader stock market's recent pullback.

Even so, now may prove a good time to invest in this newer cybersecurity company founded in 2011. Here are the reasons why an investment makes sense.

CrowdStrike operates in a secure industry

CrowdStrike's strong stock performance is understandable. In its 2021 fiscal year (FY) ended Jan. 31, CrowdStrike delivered $874.4 million in revenue, an 82% year-over-year increase. For FY 2022, CrowdStrike forecasts continued double-digit percentage revenue growth of at least $1.3 billion.

A technician sits at a computer looking at a wall packed with multiple monitors.

Image source: Getty Images.

It's likely CrowdStrike will meet or exceed this guidance. It operates in the rapidly expanding cybersecurity sector. Forecasts predict the global cybersecurity market to rise from $184.2 billion last year to $248.3 billion by 2023. This gives CrowdStrike plenty of room to grow despite the droves of cybersecurity competitors in the market.

Cybersecurity is a must-have. Every internet-connected device requires some degree of protection. Without security, criminals can secretly take control of your computer, gaining access to bank accounts or performing other insidious types of attacks. Cybercriminals today are fond of blocking access to computer files unless a ransom is delivered, as was seen in the recent Colonial Pipeline hack where the firm reportedly paid nearly $5 million to the perpetrators.

Cyberattacks will increase in frequency and sophistication. The number of attacks reported to the FBI more than tripled after the start of the pandemic, from about 1,000 per day to over 3,000 as internet reliance increased. The threat is so significant, the World Economic Forum listed cyberattacks as one of 2021's top global threats alongside the coronavirus pandemic.

CrowdStrike's advantages

Along with industry growth as a tailwind, CrowdStrike has attributes to achieve outsized success. The company uses a software-as-a-service (SaaS) pricing model, generating most of its revenue from subscribers to its Falcon cloud-based security platform. The SaaS model gives CrowdStrike reliable recurring revenue, unlike the old software licensing model that dominated the industry before cloud computing transformed how businesses implemented technology infrastructure.

As a younger company, CrowdStrike built its platform from the ground up with a modern architecture designed to deliver security for the cloud. Older rivals spent years adapting existing technology to support cloud computing environments, and those rivals are still hampered by the limitations of legacy technologies. This gave CrowdStrike an edge when it entered the market in 2011, and it's not looked back since.

CrowdStrike's revenue has grown steadily as IT customers flock to its easy-to-use, comprehensive platform.

CRWD Revenue (Annual) Chart

Data by YCharts.

Cybersecurity's importance means that implementing it correctly and quickly are key customer considerations. Competitors can take hours or even days to set up. IT professionals can implement CrowdStrike's Falcon within minutes, even when migrating from existing security.

This latter point is important. CrowdStrike's growth strategy includes capturing customers from competitors by making it easy to replace existing cybersecurity products.

Another key growth engine is CrowdStrike's international expansion. The company has consistently grown international revenue since going public in 2019.

Fiscal Year International Revenue YOY Growth
2021 $247.0 million 98%
2020 $124.9 million 116%
2019 $57.8 million 196%

Data source: CrowdStrike. YOY = year-over-year.

Its strategies are working. CrowdStrike saw customer subscriptions increase 82% in FY 2021. The company went from 5,400 subscription customers in FY 2020 to nearly 10,000 at the end of January this year.

CrowdStrike isn't resting on its laurels. On May 18, the company unveiled its latest innovation, which combines its repository of threat intelligence with its detection capabilities to deliver specifics about a cyberattack as well as those behind it. It's the first industry solution to spotlight the attackers themselves.

Weaknesses are hard to find

CrowdStrike's one downside was that its product didn't perform as well as many peers in independent testing last year. That changed with new test results released in May. CrowdStrike was one of the few to stop 100% of the cyber threats thrown at it.

On the financial front, it has yet to reach profitability. The company suffered a net loss of $92.6 million in FY 2021, but this is a reduction from the previous year's loss of $141.8 million. It's common for tech companies to operate at a loss for years as they work to prioritize growth.

Besides, its balance sheet is strong. CrowdStrike exited FY 2021 with $1.9 billion in cash and equivalents, a substantial step up from the prior year's $264.8 million. Total assets came in at $2.7 billion compared to total liabilities of $1.9 billion.

With a superior product, a strong balance sheet, and phenomenal growth, CrowdStrike is a worthwhile investment.

Robert Izquierdo owns shares of CrowdStrike Holdings, Inc. The Motley Fool owns shares of and recommends CrowdStrike Holdings, Inc. The Motley Fool has a disclosure policy.

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