What happened
Shares of cloud cybersecurity company CrowdStrike Holdings (CRWD +1.79%) pulled back on Friday morning following the release of financial results for the first quarter of its fiscal 2023. As of 11 a.m. ET today, the stock was down 6%.
NASDAQ: CRWD
Key Data Points
So what
In the first quarter, CrowdStrike generated revenue of $488 million, which was up a whopping 61% year over year, far exceeding the high end of its revenue guidance of $465 million. Most of the company's revenue is on a subscription basis. Therefore, it has tremendous visibility for forecasting revenue. And management raised full-year revenue guidance when it reported first-quarter results.
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Despite beating expectations and raising guidance, the analyst community is divided today regarding CrowdStrike stock. Some are raising price targets; some are lowering them.
Perhaps the largest price-target drop came from Stifel analyst Brad Reback. According to The Fly, Reback lowered the target 18% to $205 per share. While he believes the company is strong and getting stronger, he expects the stock's high valuation to continue to come down. For context, CrowdStrike stock trades at around 17 times revenue expectations for 2022, whereas traditional value investors would probably consider anything over a price-to-sales of 5 to be extreme.
Now what
This dynamic is always at play in investing. The first consideration is the health of the business. The second is what that business is worth. When it comes to CrowdStrike, it has high revenue growth, a record amount of remaining performance obligations totaling nearly $2.4 billion, and it generated record free cash flow of $158 million in first quarter. Therefore, I believe it's fair to say CrowdStrike's business is healthy.
What's the stock worth? This question is harder to answer the shorter one's time horizon is. Keep in mind that most analysts are only looking at what the stock is worth over the next few quarters, hence they're divided on their price targets now. But I would say that, considering the ongoing growth in the cybersecurity space, CrowdStrike shareholders have a superb chance of positive returns over the long run, given the health of the business.
