What happened
Tic-tac-toe, three positive news items in a row helped to drive shares of cybersecurity expert CrowdStrike (CRWD +1.04%) stock up 7.6% through 1:45 p.m. ET Thursday.
And you can thank investment bank Stephens for starting the ball rolling.
Image source: Getty Images.
So what
Right after markets closed for trading yesterday, Stephens upgraded CrowdStrike stock to "overweight" (a "buy" recommendation) with a $232 price target, citing the company's "strong and widening tech moat," "comprehensive" product offerings, and "ample runway" for growth as primary reasons for liking CrowdStrike. The investment bank predicted CrowdStrike can predictably grow sales at 30% annually for the foreseeable future.
One day later -- this morning -- CrowdStrike received positive mention again on StreetInsider.com. And now, we know why: It turns out that Cleveland Research just raised its estimates for CrowdStrike's upcoming fiscal first-quarter 2023 earnings report -- and for the whole fiscal year in fact. Says TheFly.com (quoting Cleveland): CrowdStrike "has delivered 4%-5% upside to revenue guidance in the past four quarters and the firm's work suggests bigger beats than that are likely in the near-term."
And that near term may be nearer than you think.
Now what
Just one week from today, on June 2, CrowdStrike is scheduled to report its Q1 numbers. Analysts are forecasting a mind-blowing 53% growth rate to $463.1 million in revenue for the quarter. They believe that earnings at CrowdStrike could more than double to $0.23 per share (presumably pro forma).
If Cleveland is right, though, and CrowdStrike has lowballed its estimates such that analysts are being too conservative in their forecasts, CrowdStrike could conceivably report as much as $486 million in sales (60% year-over-year growth) and earnings of more than $0.24 per share -- nearly 150% year-over-year earnings growth. No wonder investors are excited today.
That being said, before you get overexcited, consider this: With a $36.7 billion market capitalization currently, even if CrowdStrike maxes out Cleveland Research analysts' prediction for its Q1 sales, the stock will still be selling for a staggering 23 times trailing sales. Nor should you give analyst estimates of pro forma earnings too much weight. Although CrowdStrike has reported positive pro forma profits in each of the last four quarters, when calculated according to generally accepted accounting principles (GAAP), CrowdStrike remains deeply unprofitable, losing more than $1 a share over the past year.
Unless that somehow changes for the better next week, consider taking any post-earnings price rally as an opportunity to take profits on this stock.
