This Unstoppable Growth Stock Is Making Strides Towards a $126 Billion Market Opportunity

CrowdStrike Holdings (CRWD 2.96%) has been unstoppable. The cloud security company grew its annual recurring revenue (ARR) by 59% during its fiscal second quarter, pushing it to $2.14 billion. That continued its streak of steadily growing its ARR each quarter.

The cybersecurity company believes it can continue growing briskly in the coming years. Driving that view is the large and growing total addressable market (TAM) opportunity for cloud security, which it sees reaching $126 billion by 2025. It recently took a step toward capitalizing on that opportunity by making another acquisition to expand its capabilities.

Another step forward

At its initial public offering in 2019, CrowdStrike estimated that the TAM for its product offerings at the time was $25 billion. A combination of organic market growth, new product initiatives, and acquisitions has expanded the company's TAM to over $58 billion. It sees that rising to over $71 billion in the next two years, driven solely by organic market growth. That's a sizable opportunity for the company to work on capitalizing on in the future. 

However, CrowdStrike isn't resting on its laurels. The cloud security company envisions new products and future initiatives growing its TAM to $126 billion by 2025. It's pressing toward that larger market opportunity by investing in product innovation, which includes making targeted strategic acquisitions to expand its capabilities.

The company recently announced its latest deal, agreeing to acquire Reposify for an undisclosed amount of cash and some stock and options subject to vesting conditions. Reposify provides an external attack surface management platform. It will expand CrowdStrike's threat intelligence and security and IT operations product suites, providing customers with a better view of the threats they face. That should enhance CrowdStrike's ability to win, retain, and expand its customer relationships, improving its ability to capture more of the large and growing cloud security market opportunity. 

The flexibility to continue expanding

Reposify is the latest in a string of acquisitions CrowdStrike has made over the past few quarters to enhance its platform, accelerate product innovation, and expand its TAM. The most high-profile transaction was its $400 million deal for Humio early last year, which opened the door to the $4.5 billion log management market. CrowdStrike also acquired SecureCircle to capitalize on the $3.4 billion data protection market. 

The company was able to make these acquisitions because it has a strong financial profile. CrowdStrike is producing a growing stream of free cash flow. The company generated $293 million of free cash flow during the first half of its current fiscal year, 54% above its tally in the year-ago period. Meanwhile, it has a cash-rich balance sheet. It ended its second fiscal quarter with $2.32 billion of cash and equivalents against $740 million of long-term debt, which it issued last year to take advantage of low interest rates.

That combination of growing free cash flow and a cash-rich balance sheet gives CrowdStrike the financial flexibility to continue investing in product innovation and making acquisitions. That's a big competitive advantage these days. Rising interest rates and falling equity values make it harder and more expensive for companies to access outside capital. Because of that, CrowdStrike could have more opportunities to make acquisitions, as earlier-stage cash-burning companies will likely struggle to obtain outside financing, potentially forcing them to consider a sale. That could enable CrowdStrike to further accelerate product innovation to expand its ability to capture more of the large and growing security market.

Unstoppable growth at a lower price

CrowdStrike continues to enhance its platform by making targeted acquisitions to drive additional growth. With a business spinning off free cash and a cash-rich balance sheet, it has enormous financial flexibility to keep making moves that accelerate and improve its ability to capitalize on the $126 billion market it sees ahead for cloud security. That massive growth potential makes it a potentially compelling opportunity for long-term investors, especially with shares now 40% off their high due to the turbulence in the market over the past year.