Is CrowdStrike Holdings Stock a Buy?

CrowdStrike Holdings (CRWD 3.64%) posted its first-quarter report on Thursday, June 2. The cloud-native cybersecurity company's revenue rose 61% year over year to $487.8 million, beating analysts' estimates by $23.5 million.

Its Q1 adjusted net income jumped 221% to $74.8 million, or $0.31 per share, which also cleared the consensus forecast by eight cents. On a generally accepted accounting principles (GAAP) basis, it narrowed its net loss from $85 million to $31.5 million.

Those growth rates were impressive, but can CrowdStrike stock regain its mojo after tumbling more than 40% from its all-time high last November? Let's see if this fallen growth stock is worth buying again.

Image source: Getty Images.

How fast is CrowdStrike growing?

CrowdStrike's cloud-native Falcon platform eliminates the need for on-site security appliances -- which generally take up a lot of space, are expensive to maintain, and are difficult to scale as an organization expands. That disruptive approach attracted a lot of customers and turned CrowdStrike into one of the fastest-growing cybersecurity companies in the world.

During the first quarter, CrowdStrike's total number of subscription customers rose 57% year over year to 17,945. Its annual recurring revenue (ARR) increased 61% to $1.92 billion. Those growth rates have remained remarkably robust over the past year.

Data source: CrowdStrike. YOY = Year over year.

It's still landing and expanding

CrowdStrike's Falcon platform hosts over 20 different cloud-based modules. It initially provides a trial version of four modules, which supports its "land and expand" strategy of selling more modules.

The percentage of Falcon's customers that used four, five, and six or more modules has steadily increased over the past year. That expansion has enabled CrowdStrike to keep its dollar-based net retention rate above its "benchmark" level of 120% ever since its IPO in 2019.

Data source: CrowdStrike.

In the first quarter, CrowdStrike also revealed that its percentage of customers that had deployed seven more modules had reached 19%.

Stable gross margins and rising operating margins

The increasing stickiness of CrowdStrike's subscription-based ecosystem gives it plenty of pricing power against its cybersecurity peers. As a result, its gross margins have consistently remained in the high 70s by both GAAP and non-GAAP measures over the past year.

Data source: CrowdStrike.

CrowdStrike's operating margins also continued to improve by both GAAP and non-GAAP metrics as its scaled up its operations.

Data source: CrowdStrike.

It expects its non-GAAP operating margins to eventually reach 20% to 22% over the "long term." That ongoing expansion suggests that CrowdStrike can eventually turn profitable on a GAAP basis.

A sunny outlook and a reasonable valuation

CrowdStrike now expects its revenue to rise 52% to 53% year over year in the second quarter and 51% to 52% for the full year. That was significantly higher than its prior full-year guidance for 47% to 49% revenue growth.

It expects its non-GAAP net income to grow 151% to 162% year over year in the second quarter, and to increase 76% to 83% for the full year. That was also higher than its prior full-year guidance for 56% to 70% net income growth.

During the conference call, CFO Burt Podbere said CrowdStrike raised its full-year guidance because it remained "optimistic about the demand for our offerings, record pipeline, and our ability to execute on the powerful secular trends fueling our markets."

CrowdStrike's stock trades at about 18 times its new sales forecast for fiscal 2023. That price-to-sales ratio might seem high, but it's in line with other high-growth cybersecurity companies like Zscaler (ZS 3.43%) and SentinelOne (S 3.62%). Zscaler, which expects to grow its revenue 60% this year, trades at 21 times that estimate. SentinelOne, which expects its revenue to nearly double this year, trades at 17 times that forecast -- but it still remains deeply unprofitable by non-GAAP measures.

Is it time to buy CrowdStrike?

CrowdStrike's stock might remain volatile this year as rising interest rates drive investors away from higher-growth stocks. However, I firmly believe it's a rock-solid investment on the secular expansion of the cybersecurity sector -- and it could still generate massive returns for patient investors.