Cybersecurity leader CrowdStrike (CRWD 4.21%) fell 22.9% in November, according to data from S&P Global Market Intelligence. CrowdStrike didn't report any earnings during the month but fell along with many high-multiple growth stocks amid fears of higher inflation and interest rates. Additionally, CrowdStrike received an analyst downgrade in the middle of November, based on valuation concerns.
Despite November's swoon, CrowdStrike has been a tremendous winner since going public. After the company climbed to new all-time highs at the beginning of the month, many investors may have been looking to take profits.
Analysts at Morgan Stanley sounded an alarm in mid-November, initiating the stock with an underweight rating. The analysts concluded that CrowdStrike's stock had gotten ahead of itself in terms of valuation and competition was heating up in the red-hot cybersecurity space.
Additionally, late-month Federal Reserve Congressional hearings saw Chairman Jay Powell declare inflation might not be as transitory as first thought and interest-rate hikes may come sooner than expected. Higher rates could lead to investors discounting future earnings by a greater amount, which would hurt valuation multiples of growth stocks like CrowdStrike. Thus, CrowdStrike and many of its peers rapidly derated toward the end of the month.
After CrowdStrike's decline, it still trades at a rather high valuation of 34.5 times sales. Still, the company is a leader with a pretty good moat in cybersecurity, due to network effects and the company's artificial-intelligence chops.
As the calendar turned to December, CrowdStrike also posted strong earnings that came in ahead of analyst expectations for both revenue and adjusted earnings per share.
It's quite likely that CrowdStrike will never be "cheap." As a shareholder, I'm continuing to hold, and those without a position may wish to look at this top-quality cybersecurity name after its recent haircut.