What happened
Shares of cybersecurity company CrowdStrike (CRWD 0.14%) got tackled for a loss Monday morning. Its shares had tumbled by 10.5% as of 10:37 a.m. EST.
You can thank Morgan Stanley for that.
Image source: Getty Images.
So what
Bright and early Monday morning, investment bank Morgan Stanley initiated coverage on CrowdStrike with an underweight (i.e., sell) rating and a $247 price target that implies the stock has another $7 or so to fall from here before it reaches fair value.
The "potential for decelerating revenue growth" and the stock's valuation of approximately 26 times its 2023 sales "creates an unfavorable risk-reward," warned analyst Hamza Fodderwala in a note covered by StreetInsider.com today. Furthermore, CrowdStrike's first-mover advantages appear to be fading as its rivals' next-generation endpoint detection and response offerings catch up to it in terms of capability -- and as its peers offer those services to customers for at least 15% to 20% less.
Long story short, Fodderwala forecasts that CrowdStrike's revenue growth will decelerate through 2022.
Now what
But now here's the weird thing: After warning so strenuously about CrowdStrike's prospects, the Morgan Stanley analyst actually ended up concluding that the stock trades for only "a slight premium" relative to the average valuations within the cybersecurity space. What's more, while Fodderwala said he anticipates seeing "relatively lower estimate beats going forward," he still thinks CrowdStrike will keep beating estimates in future quarters.
Call me crazy, but that actually doesn't sound like half-bad news for CrowdStrike shareholders. While I admit the stock's valuation of 170-times-free-cash-flow looks more than rich to me, the potential for continued earnings beats -- a potential now affirmed by a CrowdStrike "bear" -- suggests to me that this stock could continue to power higher despite Morgan Stanley's sell rating.
