What happened
Shares of endpoint security provider CrowdStrike Holdings (CRWD 1.79%) fell 3% in 2021, according to data provided by S&P Global Market Intelligence. For the sake of perspective, the stock gained 325% in 2020 as the work-from-home trend caused skyrocketing demand for cloud-based cybersecurity protection for remote workforces. Nevertheless, it's little consolation for those who bought CrowdStrike in 2021 amid heightened growth stock volatility.
So what
2021 was a tough go for growth stocks in general, particularly those like CrowdStrike that are growing at an especially fast rate but trade at a high premium. For CrowdStrike's current fiscal year (which wraps up Jan. 31), management expects total sales to jump about 64%, building on the incredible 82% revenue gain the year prior.
Image source: Getty Images.
The problem, though, is that CrowdStrike is no closely held secret. That's reflected in the more than 50 times trailing-12-month sales the stock traded for at times last year (currently, it trades for 33 times trailing-12-month sales). Suffice to say shareholders fully expect CrowdStrike to continue delivering double-digit-percentage growth for years to come. But with interest rates set to rise this year, according to signals from the Federal Reserve, richly valued stocks were due for a correction -- since higher interest rates lower the value of future cash flow, which in turn lowers the current value of a stock.
Now what
Between rapid growth and lackluster stock performance, CrowdStrike is now much more reasonably priced at the onset of 2022. Endpoint security will continue to be a fast-moving frontier in the cybersecurity industry for the foreseeable future, which bodes well for this company. And though it is still spending heavily on product development and marketing, CrowdStrike is wildly profitable. Free cash flow profit margin was 32% over the trailing 12 months. That also bodes well for the company's future prospects.
Nevertheless, expect more volatility ahead. The Federal Reserve is going to hike interest rates sooner rather than later, and that will cause some headwinds for CrowdStrike's stock. But if you are invested for the long-term potential, stay focused on the growth narrative as CrowdStrike deepens its presence in the security software niche of the IT world.
