What happened
Shares of CrowdStrike Holdings (CRWD +0.19%) were up 2.5% as of 12:29 p.m. ET on Tuesday after favorable comments from one Wall Street analyst.
Following more robust growth through the first three quarters of 2022, the stock has fallen 36%, but Goldman Sachs believes the stock offers an attractive risk-to-reward trade-off at current share price levels.
NASDAQ: CRWD
Key Data Points
So what
Goldman Sachs analyst Gabriela Borges initiated coverage of the cybersecurity provider with a buy rating and a near-term price target of $141. Borges believes the company's decelerating top-line growth is already priced into the stock. On that note, Borges believes CrowdStrike's position in cloud-based endpoint security and improving free cash flow should lead the stock higher.
CrowdStrike certainly hasn't gotten enough credit for how its subscription-based business model is producing tremendous free cash flow. The stock's decline has brought the price-to-free cash flow ratio down to 45, which is less than the company's trailing revenue growth rate.
Data by YCharts
Now what
It's a good sign for CrowdStrike's long-term competitive position that its dollar-based retention rates have remained high in an uncertain economic environment. Management mentioned on the last earnings call that more customers were "standardizing" the Falcon platform and adopting more modules.
Cybersecurity is a must-have for enterprises, regardless of how the economy performs. That's why analysts expect the company to deliver 53% revenue growth in fiscal 2023 (which ended in January). However, the consensus analyst estimates call for top-line growth to moderate to 33% in fiscal 2024, but this should be enough to support the stock's lower valuation relative to free cash flow.
Investors will closely be following CrowdStrike's upcoming earnings report on March 7 to get the latest on cybersecurity demand trends.
