The cybersecurity industry sits in a unique place. When a recession strikes or a company isn't doing as well, cybersecurity solutions are far from the top of the list of items that get cut. As a result, the industry ends up being fairly recession-proof. Additionally, cyberattacks are expected to ramp up over the coming years, positioning a security product at a unique crossroads.
While there are several cybersecurity stocks you can invest in, one rises above them all: CrowdStrike (CRWD 2.03%). So if you've got $1,000 burning a hole in your wallet, CrowdStrike makes it onto my shortlist for the best companies to invest in right now.
CrowdStrike heavily utilizes AI technology
What made CrowdStrike special and allowed it to rise rapidly is its protection solution powered by artificial intelligence (AI). By analyzing trillions of signals weekly, CrowdStrike's model is constantly fed information on the latest threats to determine when an attack occurs and shut it down within minutes. CrowdStrike's primary product is endpoint security, which protects devices like laptops or phones from attacks.
But that's just the start.
With other offerings, like threat intelligence, identity protection, and cloud security, CrowdStrike has a broad product suite with over 20 different products. Its clients also take advantage of CrowdStrike's reach, with 62% of its customers utilizing five or more products.
With CrowdStrike's strong offerings, it's unsurprising that it's rapidly attracting customers. In FY 2023 (ending Jan. 31, 2023), its customer count rose by 41% to over 23,000 after sitting at around 2,500 just five years ago. Among its clients are 271 of the Fortune 500 and 556 of the Global 2000, showing CrowdStrike has captured a large chunk of the biggest companies but still has some distance to go before outright market domination.
Unlike most tech companies, CrowdStrike hasn't seen its growth slow over the past year.
The stock is reasonably priced compared to its peers
In Q4, CrowdStrike reported a 48% annual recurring revenue growth to $2.56 billion. With Wall Street analysts projecting CrowdStrike to grow by 34% and 29% in FY 2024 and FY 2025, respectively, its growth levels are quite impressive.
With CrowdStrike's unprofitable state, it must continue growing to break even. In Q4, CrowdStrike posted a net loss of $48 million. But if you subtract stock-based compensation, that number rises to a $105 million profit. Because stock-based compensation is a non-cash expense, CrowdStrike looks profitable from a different measure: free cash flow (FCF).
This metric measures how much cash the company produces, which was $209 million in Q4 for CrowdStrike -- an impressive 33% margin. Achieving FCF is critical to a company's health, as it allows it to do what seems right, be it an acquisition, stock repurchase, or payment on its debt. With over $2.7 billion of cash on its balance sheet (and growing) compared to $741 million in long-term debt, CrowdStrike is financially healthy.
Investors can also value a company utilizing its FCF metric. With the stock trading for 41 times FCF, it does look a bit pricey.
CRWD Price-to-Free-Cash-Flow data by YCharts.
However, that utilizes trailing FCF, which doesn't account for the company's revenue growth or rising FCF margins. By utilizing its forward price-to-FCF (which uses FY 2024 revenue projections and its Q4 FCF margin of 33%), CrowdStrike is valued at a much more reasonable 28 times future FCF.
Compared to tech giant Microsoft, which trades at 40 times FCF and 41 times forward FCF, CrowdStrike stock looks like a steal here.
CrowdStrike's stock has some high expectations, but not nearly as much as most investors think. With the company already executing at a high level, CrowdStrike looks like a no-brainer buy at these prices.
