What happened

For the second day in a row post-earnings, shares of cybersecurity specialist CrowdStrike Holdings (CRWD 0.28%) moved lower on Thursday. Not only was the stock down by more than 6% as of 2:24 p.m. ET Thursday -- and down more than 11% since earnings came out -- since hitting its recent peak price about a week ago, CrowdStrike is down more than 15%.

The question is why?

So what

Surveying the earnings report Wednesday, my Motley Fool colleague Danny Vena ruled out all the obvious answers. CrowdStrike didn't "miss earnings" in its fiscal 2023 second quarter. To the contrary, at $0.36 per share, its adjusted earnings were 33% ahead of analysts' forecasts for the period that ended July 31. CrowdStrike didn't miss on revenues either. Its $535 million in sales were nearly $20 million more than Wall Street had predicted.

Earnings guidance was great, too -- $0.31 per share for the current quarter, more than 10% ahead of predictions, with above-forecast revenues as well. Similarly, earnings for the full year are expected to be roughly $1.32 per share, up from CrowdStrike's previous prediction (and Wall Street's parroted estimate) of $1.20 per share.  

Now what

Responding to the news, no fewer than nine Wall Street analysts raised their price targets on CrowdStrike, with Citigroup in particular putting in a Street-high prediction that CrowdStrike will hit $245 a share within the next 12 months -- 44% higher than where the stock sits today. BTIG called CrowdStrike's results "exceptional" and Deutsche Bank exclaimed that it could find "little to critique" in the quarter.  

So allow me to assist with that.

Though it did beat earnings estimates for the quarter, CrowdStrike's only profits in its fiscal Q2 were of the non-GAAP variety. When calculated according to generally accepted accounting principles (GAAP), CrowdStrike lost money -- more than $49 million -- just as it has lost money every quarter since it came public.  

That's not necessarily dispositive, and not necessarily a reason to sell. CrowdStrike is generating positive free cash flow, and quite a lot of it -- $569 million over the past 12 months. Still, for a company with a market cap of $42.4 billion, that works out to a price-to-free cash flow ratio of 74.5. Even for a company that's predicted to grow its profits by 54% annually over the next five years, that's a pretty rich valuation.

If you ask me, then, the reason CrowdStrike is going down after earnings this week isn't because of the earnings at all. It's because CrowdStrike stock is simply valued too expensively.