What happened
Shares of CrowdStrike (CRWD 1.76%) slipped again on Tuesday. After falling roughly 4% on Monday, the cybersecurity specialist fell another 3.8% today. Meanwhile, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average indexes ended today's session down 1.4%, 2%, and 1%, respectively.
Growth stocks rallied last week after Federal Reserve Chairman Jerome Powell indicated that future interest rate hikes from the central bank would step down from the 75-basis-point increases delivered with its last four consecutive meetings. But CrowdStrike didn't participate in the rally due to sell-offs driven by its third-quarter earnings report, and renewed concerns about lasting macroeconomic pressures have kicked off new bearish momentum this week.
Image source: Getty Images.
So what
Sell-offs for CrowdStrike driven by recession concerns early this week come on the heels of a more-precipitous valuation decline for the company after it published its third-quarter earnings results last week. While it delivered sales and earnings that came in ahead of the average analyst estimates and even raised its full-year performance outlook, management's guidance suggesting headwinds in the next fiscal year prompted investors to move out of the stock.
CrowdStrike is now down roughly 11% over the last month, 44% year to date, and 61% from the high that it reached last year.
Now what
CrowdStrike has a leading position in the endpoint security market, and it has a promising long-term growth outlook. On the other hand, the company and its stock could continue to face pressures in the near term.
It has a market capitalization of roughly $26.7 billion and is valued at approximately 12 times this year's expected sales and 76 times expected earnings. Even after big sell-offs, the cybersecurity specialist still has a growth-dependent valuation, and it's possible that continued macroeconomic pressures and market volatility will lead to more turbulent trading for the stock.
The company's midpoint guidance for the current fiscal year calls for revenue to grow roughly 53.6%. But management's projections for next year call for growth in annualized recurring revenue to slow to low 30s pecentages and subscription revenue to decelerate to the low to mid 30s. And that reflects expectations for a more challenging economy.
For risk-tolerant investors willing to weather volatility, I think CrowdStrike is a worthwhile buy at today's prices, but trading for the stock could continue to be choppy in the near term.
