CrowdStrike's (CRWD +1.37%) stock price has more than doubled over the past three years. The cybersecurity company impressed investors with the rapid growth of its cloud-native Falcon platform, which eliminated the need for on-site appliances.
That approach, which was cheaper and easier to scale as an organization expanded, caught on like wildfire. Between fiscal 2020 and fiscal 2023 (which ended this January), CrowdStrike's annual revenue grew at a compound annual growth rate (CAGR) of 67% as its total number of subscription customers surged from 5,431 to 23,019.
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But can CrowdStrike maintain that momentum over the next three years as it faces tough competition from both stand-alone cybersecurity challengers like SentinelOne and diversified tech giants like Microsoft? Let's review CrowdStrike's growth strategies and see where its stock might end up in 2026.
$5 billion in ARR by fiscal 2026
During a recent investor day presentation, CrowdStrike claimed its annual recurring revenue (ARR) would rise from $2.56 billion in fiscal 2023 to more than $5 billion in fiscal 2026. That outlook sounds impressive, but it would only equal a CAGR of at least 25% -- which would be much slower than its CAGR of 62% for its ARR over the past three years.
CrowdStrike expects its total addressable market (TAM) to expand at a CAGR of 28% from $76 billion in 2023 to $158 billion in 2025. It believes that as that market expands, it will gain more customers, launch more cloud modules, and convince its customers to adopt more cloud modules with its "land and expand" strategy.
This strategy has worked so far. At the end of fiscal 2023, 62% of its customers were using at least five modules, compared to 57% a year ago, while the percentage of its customers using at least six modules rose from 34% to 39%.
As it continues to expand, CrowdStrike plans to maintain an adjusted subscription gross margin of at least 77%-82%, an adjusted operating margin of at least 20%-22%, and a free cash flow (FCF) margin of more than 30% over the long term. For reference, CrowdStrike posted an adjusted subscription gross margin of 78%, an adjusted operating margin of 16%, and a FCF margin of 30% in fiscal 2023.
NASDAQ: CRWD
Key Data Points
That stable outlook implies that CrowdStrike isn't too worried about competitive threats. That's probably because it's already established a first-mover advantage in the cloud-native cybersecurity market and currently serves 556 of the Global 2000, 271 of the Fortune 500, and 70 of the Fortune 100. It's doubtful those large companies -- which are already locked into CrowdStrike's sticky ecosystem of subscription-based cloud modules -- will abruptly switch cybersecurity providers.
During the investor day presentation, CrowdStrike also shot down the bearish notion that Microsoft could render Falcon obsolete with its integrated Defender services. Its field CTO Cristian Rodriguez pointed out that many large customers, including state agencies and school districts, had recently replaced Defender with Falcon because the former was ineffective at blocking malware attacks and was tethered to restrictive Windows licenses.
Many of CrowdStrike's smaller competitors -- including SentinelOne -- are also deeply unprofitable by both generally accepted accounting principles (GAAP) and non-GAAP measures. Therefore, CrowdStrike could continue to expand at a steady rate as those lower-margin challengers struggle to gain more customers and adequate pricing power.
Where will CrowdStrike's stock be in three years?
Assuming that CrowdStrike's annual revenue follows its projected ARR and rises at a CAGR of 25% through fiscal 2026, it could generate $4.4 billion in revenue by the final year. If its valuations hold steady, then its stock would roughly double.
But at $130 a share, CrowdStrike is already a bit pricey at more than 60 times forward earnings and 10 times this year's sales. If we cut those valuations in half -- which would arguably be more appropriate for a stock that is growing its revenue at about 25% per year -- its stock could potentially trade sideways for the next three years.
CrowdStrike's price-to-sales ratio won't drop to 5 anytime soon, since investors are still willing to pay a premium for the disruptive potential of its cloud-native cybersecurity services. But I also don't think it will keep trading at 10 times sales as it cools off from its hypergrowth rates over the past few years.
Therefore, I think CrowdStrike's stock will rise slightly through fiscal 2026 if it fulfills its investor day goals. But a lot of growth is still priced into its shares -- so investors shouldn't expect its stock to double again as it did in the previous three years.
