CrowdStrike Holdings (CRWD -3.99%) is off to a hot start so far in 2023. Just two and a half months into the new year, shares have rallied over 20% -- though they still remain down over 20% from a year ago. This includes a jump higher following the company's earnings report for the fourth quarter of fiscal 2023 (the three months ended January 2023, mostly corresponding to calendar year 2022).  

Of far more importance than the last three months, though, was CrowdStrike's guidance for the year ahead. This cybersecurity leader is further cementing itself as an incredibly important player in the industry, and it's homing in on the cybersecurity pure-play revenue leaders Palo Alto Networks and Fortinet. It's been a rough go for CrowdStrike stock during the bear market. Is it finally time to start buying again?  

A stellar conclusion to a nasty year

CrowdStrike's fiscal 2023 was challenging. With inflation coming in hot and the U.S. Federal Reserve aggressively raising rates to try to cool off the economy, the company kept up its rapid expansion. CrowdStrike closed out its fiscal 2023 with revenue of $637 million, up 48% year over year. Annualized recurring revenue (ARR), a metric used by subscription software-as-a-service businesses, grew 48% as well and ended January 2023 at $2.56 billion.  

Net loss under generally accepted accounting principles (GAAP) in the quarter was $47.5 million, compared to the net loss of $42 million a year ago. Free cash flow (an adjusted profit metric) was positive $210 million, up 65% year over year. Much of the discrepancy between the two metrics was due to employee stock-based compensation, which was $152 million in Q4. CrowdStrike doled out $92.6 million in stock-based comp in Q4 the year prior, so this rise wasn't exactly good news.  

Nevertheless, on a per-share basis (which does include the dilutive effect of stock-based compensation), CrowdStrike continues to deliver profitable growth for its shareholders at a rapid pace. If free cash flow continues to scale higher, I expect management will begin returning some of it to shareholders via stock buybacks.

CRWD Free Cash Flow Chart

Data by YCharts.

This growth cycle for endpoint security shows no signs of slowing

Cybersecurity is a secular growth trend, and endpoint security (for devices, especially those remotely accessing an organization's data and apps) is an especially important market in today's mobile-first world. There's no end in sight for CrowdStrike's double-digit percentage growth. 

For fiscal year 2024, management expects revenue to be $2.955 billion to $3.015 billion -- implying growth of 33% at the midpoint of guidance. CEO George Kurtz and the top team reiterated their goal to reach $5 billion in ARR by the end of fiscal year 2026, and for adjusted operating profit margin to reach at least 20% in fiscal year 2025. Adjusted operating margin was 16% this past year.

Time to buy this premium-priced stock?

After the quarterly update, CrowdStrike is valued at 43 times trailing-12-month free cash flow. It's significantly "cheaper" now than it has been most of the time the company has been public. It's still a premium, though, and the market is anticipating the company will achieve its lofty goals -- and shares are only a buy if you expect CrowdStrike to continue growing and maturing well beyond that point. Can it do so?

I think it could. Besides overall growth of cybersecurity in the coming decade, CrowdStrike and its large security software peers have been reporting customers are increasingly interested in consolidating their vendor list. Bundling services saves money and decreases the complexity of keeping an IT operation secure. CrowdStrike and its steadily expanding list of modules helps deliver on that goal.  

In fact, Kurtz said on the earnings call that "emerging products" (like identity protection and LogScale) ARR grew 116% year over year at the end of the last fiscal year to $339 million. If those new products can continue to expand, it represents an incredible compounding growth opportunity for CrowdStrike -- not to mention an additive to profitability as those new products increase in operating efficiency.  

For decades, the cybersecurity industry has been a complicated patchwork of companies addressing various niches of the IT world. Though I expect cyber software to remain fragmented, the market is ripe for consolidation and growth -- and CrowdStrike is well positioned to benefit. Issues like rising employee stock-based compensation remain, but the company has ways to deal with this over time. After a rough year-plus run, I think it's time to call this stock a buy again.