Despite posting strong sales and earnings growth over the last year, CrowdStrike's (CRWD 0.14%) valuation slumped amid the broader pullback for growth stocks. The cybersecurity specialist's share price is down 35% over the last year and roughly 61% from its peak.
While the company's stock price was pressured by rising interest rates and its business will likely face a less favorable growth backdrop due to economic challenges this year, the endpoint-protection provider looks like a fantastic long-term investment at current prices. Read on to see why you should consider buying CrowdStrike stock today and holding it for the ultra-long term.
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A great business that's built to last
CrowdStrike's Falcon platform uses artificial intelligence-powered threat detection to identify and respond to cyberattacks. Its technologies prevent endpoint devices including computers, mobile devices, and servers from being used as doorways for gaining access to, and attacking, networks.
The company estimates that nearly 80% of cyberattacks use identity-based tactics in order to fake or compromise legitimate credentials. Once a bad actor gains access to a network, it's possible they will go undetected for months and could cause incredible amounts of damage in the time that it takes to identify and contain the threat.
Spurred by a rising tide of cyberattacks and increasing damages when a breach occurs, CrowdStrike has been seeing very strong demand for its services. CrowdStrike ended the third quarter of its fiscal year 2023 with 21,146 subscription customers, representing 44% growth from the previous year. Customers that were already using the company's Falcon platform increased their spending by 23.9% on average in the third quarter.
Powered by the dual growth engine of new customer additions and strong net revenue retention, CrowdStrike's revenue rose 53% to reach $581 million in Q3, and non-GAAP (adjusted) net income soared roughly 134% to hit $96.1 million. But while the company posted sales and earnings that topped expectations, management said that it expects macroeconomic headwinds to be more pronounced in the near term, and the stock has struggled.
The market appears to have balked at management's guidance for sales growth to decelerate to roughly 45% in the fourth quarter, but long-term investors should treat recent pullbacks as a chance to build a position in a great company at an opportune price.
An incredible long-term growth opportunity
While a prolonged recession in 2023 could lead to weaker sales growth as companies pull back on expansion initiatives, CrowdStrike is providing mission-critical services. Put simply, if you're a business looking for ways to trim expenses, cutting back on the quality and extent of protection provided by your cybersecurity services would be a terrible move.
The long-term demand outlook for CrowdStrike's cybersecurity services remains incredibly strong.
Based on growth for its current product catalog, CrowdStrike's management anticipates that the company's total addressable market (TAM) will grow at a compound annual growth rate of roughly 13% to reach $97.8 billion in 2025. With the company's midpoint guidance calling for roughly $2.23 billion in revenue in its most recently completed fiscal year, which ended Dec. 31, CrowdStrike has a huge opportunity to continue growing in its large and fast-growing addressable market.
The company stands as the leading service provider in its category, and the strength and interoperability of its services should help it continue to grab market share. But the opportunity here is actually even more exciting.
In addition to organic growth for its existing products, CrowdStrike expects that new product launches, initiatives, and opportunities in cloud security will push its TAM to $158 billion in 2026. With the company already gaining market share at an encouraging clip, the prospect of its addressable market expanding at such a rapid pace is tantalizing.
CRWD PS Ratio (Forward) data by YCharts
With a market capitalization of roughly $24.5 billion, some strong growth is already priced in with the stock trading at roughly 67.2 times expected forward earnings and 10.6 times expected sales. But CrowdStrike is a great business with category-leading services and long-term tailwinds at its back, and the market has become too pessimistic about its growth trajectory. The company also has a strong balance sheet to work with, closing out last quarter with a net cash position of roughly $2.47 billion.
For investors looking for companies with the potential to deliver incredible returns over the long haul, I think CrowdStrike stands out as one of the best growth stocks to buy in 2023.
