What happened

Shares of CrowdStrike (CRWD 2.03%) were trading higher on Monday. The cloud-based cybersecurity specialist jumped as much as 5.1% in early trading. By the time the market closed, the shares were still up 2.9% compared to Friday's close.

CrowdStrike was on the receiving end of an analyst upgrade, helping fuel the stock's advance.

So what

Investment bank Morgan Stanley raised its price target on CrowdStrike to $150, up from $135. This represents potential gains for investors of 28% compared to its closing price on Friday. At the same time, the team maintained its overweight (buy) rating on the stock. 

Analysts noted that CrowdStrike "quickly went from a consensus favorite to a key battleground stock entering 2023." That said, Morgan Stanley believes Wall Street has become "overly bearish" in its view, providing long-term investors with a compelling opportunity. The analysts cited CrowdStrike's expanding addressable market, large installed base of users, and its lead in "AI-driven threat detection" as driving durable annual recurring revenue (ARR) of 25% to 30%.

Now what

The investment bank could be on to something. In the third quarter (which ended Oct. 31), CrowdStrike delivered revenue of $581 million, up 53% year over year. Additionally, ARR -- which forms the baseline for future performance -- climbed 54%, which shows that its growth spurt may not be over.  

At the same time, its generally accepted accounting principles (GAAP) loss per share of $0.24 was comparable with the prior-year period. Perhaps more importantly, however, CrowdStrike generated operating cash flow and free cash flow of $243 million and $174 million, respectively. This suggests that consistent profitability is only a matter of time.

Given CrowdStrike's total addressable market, which management estimates at nearly $98 billion by 2025, the company has a long runway ahead.

While some investors might balk at paying 7 times next year's sales -- when a reasonable price-to-sales ratio is generally between 1 and 2 -- valuation cannot be viewed in a vacuum. Analysts' consensus estimates are calling for revenue growth of 36% in 2023, on top of 53% growth in 2022, but that could end up being conservative. CrowdStrike has a history of defying analysts' lowball growth estimates, so its results over the coming year will likely be higher than expected.

For all those reasons and more, CrowdStrike is a buy.