What happened
Shares of CrowdStrike (CRWD 2.03%) were trading higher on Monday, jumping as much as 5% in early trading. As of 1:37 p.m. ET, the shares were still up 4%.
While the broader market move provided some momentum, the cloud-based cybersecurity specialist was on the receiving end of an analyst upgrade, helping fuel the stock's advance.
So what
Morgan Stanley (MS 0.29%) analyst Hamza Fodderwala raised his price target on CrowdStrike stock to $163, up from $150, while simultaneously maintaining an overweight (buy) rating on the shares. The new price target represents potential gains for investors of 34% compared to Monday's close.
The analyst hosted a gathering with CrowdStrike CEO George Kurtz, CFO Burt Podbere, and President Michael Sentonas and came away from the meeting "incrementally positive." After discussions with CrowdStrike's leadership team, Fodderwala concluded that demand for the company's state-of-the-art cybersecurity tools was "far better than feared" so far this year. The analyst also posited that emerging products and new partnerships provided the potential for additional revenue growth.
Now what
The available evidence suggests the analyst is on to something. In its 2023 fourth quarter (which ended Jan. 31), CrowdStrike delivered revenue of $637 million, up 48% year over year. Additionally, annual recurring revenue (ARR) -- which forms the foundation for future growth -- climbed 48%, which suggests that its current growth spurt is far from over.
Furthermore, while its GAAP loss of $0.47 per share worsened compared to the prior-year quarter, CrowdStrike generated operating cash flow and free cash flow of $273 million and $209 million, respectively, both of which were up significantly year over year. This suggests that consistent profitability is only a matter of time.
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 -- CrowdStrike's consistent strong growth in the face of economic headwinds shows it's worthy of a premium valuation.
Furthermore, CrowdStrike generated revenue of $2.24 billion last year, a drop in the bucket compared to its total addressable market, which management estimates at nearly $98 billion by 2025. This shows that CrowdStrike has a long and prosperous runway ahead.
