Anyone who keeps up with recent headlines can attest to the fact that cybersecurity is an issue that isn't going away. Phishing, hacks, data breaches, malware, and ransomware attacks have become all too common, only increasing the need for state-of-the-art solutions -- and CrowdStrike (CRWD -1.09%) has been there to answer the call.
Yet the bear market that has plagued technology stocks since late 2021 hasn't done CrowdStrike investors any favors, as the stock is still down 57% from its peak. That flies in the face of the company's frantic pace of growth and the compelling opportunity that remains. Furthermore, seasoned investors know that it's only a matter of time before a bull market starts to run, which will enrich investors that bought quality companies -- like this one -- while they were on sale.
Let's look at three reasons investors should take advantage of CrowdStrike's struggling stock price -- while it's still a bargain.
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1. Crowdstrike's industry leading solution
CrowdStrike's cloud-native Falcon platform takes a novel, multipronged approach to cybersecurity. Its software-as-a-service (SaaS) platform uses endpoint security to continuously scan for suspicious activity on desktops, notebooks, laptops, and other devices, handling the majority of threats locally. More complex or problematic issues are sent back to its proprietary distributed threat graph, where artificial intelligence (AI) algorithms continuously evaluate trillions of high-fidelity data points each week. The AI gets smarter with each passing threat, making it increasingly more effective.
As a result, CrowdStrike is the top choice for most large businesses. In a note to clients on Wednesday, MoffettNathanson analyst Sterling Auty wrote, "Most cybersecurity experts would agree that CrowdStrike is the go-to solution at the enterprise level."
2. A large and growing market
CrowdStrike made a name for itself with its focus on devices, becoming the No. 1 market leader in endpoint security in the process. Since then, however, the company has expanded its offerings to include cloud workload protection, identity threat protection, data protection, and managed security services, among others.
The combination of its industry leading solutions and expanding market have made CrowdStrike one of the fastest-growing names in cybersecurity. The company closed out fiscal 2023 (which ended Jan. 31) with record net new annual recurring revenue (ARR) of $222 million, while its ending total ARR reached $2.56 billion. This was fueled by its dollar-based net revenue retention rate of 125%, while it retained 98% of its existing customers. Furthermore, existing users are implementing multiple solutions in greater numbers, with 62% of subscription customers adopting five or more modules over the trailing-12-month period.
In fiscal 2023, CrowdStrike generated revenue of $2.24 billion, which is a drop in the bucket compared to its total addressable market, which management estimates will grow to nearly $98 billion by 2025. While estimates of this type are generally taken with a grain of salt, it helps to illustrate the magnitude of the opportunity that remains.
3. A compelling valuation
The stock has never been cheap, but it is currently trading near its lowest valuation ever. That said, value investors will still likely balk at the stock, which is selling for 8 times next year's sales, when a reasonable price-to-sales (P/S) ratio is between 1 and 2.
Yet valuation shouldn't be viewed in a vacuum. CrowdStrike's revenue has grown 67%, on average, over the past three years, outpacing the 45% growth delivered by other cloud-software providers. It's unlikely the company will continue to grow at that breakneck pace, but its growth should be respectable nonetheless.
Analysts' consensus estimates are calling for CrowdStrike to grow revenue by 36% this year and 30% in 2024 -- even as many businesses are scaling back spending in the face of economic uncertainty. Furthermore, Wall Street has frequently underestimated the pace of CrowdStrike's growth, so those estimates could likely end up being conservative.
