1 Beaten-Down Nasdaq Stock Worth Buying Hand Over Fist

CrowdStrike (CRWD 4.34%) is a fast-growing cybersecurity company that has been reporting consistently impressive growth in its revenue and earnings thanks to the growing adoption of its cloud-based platform. But it has been in the news for the wrong reasons of late.

Shares of CrowdStrike have been dropping since the company released its fiscal 2024 first-quarter results (for the three months ended April 30) on May 31, pulling back close to 5%. But a closer look at the company's quarterly performance and outlook suggests that investors now have a buying opportunity, especially considering terrific catalysts such as artificial intelligence (AI) that could help CrowdStrike maintain high levels of growth for a long time.

Let's take a closer look at CrowdStrike's quarterly report and why investors should consider using the stock's drop to buy it hand over fist.

CrowdStrike's sell-off doesn't seem justified

CrowdStrike's Q1 revenue increased 42% year over year to $692.6 million, driven by strong growth in the company's subscription business. The company's non-GAAP (adjusted) net income jumped to $0.57 per share during the quarter from $0.31 per share in the year-ago period. Wall Street would have settled for earnings of $0.51 per share on revenue of $677 million, which means that CrowdStrike easily crushed analysts' expectations.

The company also delivered solid guidance for the current quarter. It expects $722 million in revenue in the current quarter at the midpoint of its guidance range, which would be a 35% increase from the prior-year period. Fiscal 2024 revenue is expected to land at $3.02 billion, a 35% jump over last year. Also, CrowdStrike expects to finish the year with earnings of $2.37 per share at the midpoint of its guidance, which would be a nice jump over fiscal 2023's reading of $1.54 per share.

CrowdStrike's revenue forecast for the quarter and the full year is more than what analysts were looking for. Also, the company has managed to put up solid numbers despite facing a "challenging macro environment" that led to a lengthening sales cycle. What's more, CrowdStrike continued to win more share of customers' wallets as its dollar-based net retention rate stood at more than 120% last quarter, a benchmark that the company has maintained for more than five years.

The dollar-based net retention rate measures the spending by CrowdStrike's customers at the end of a period to the spending by the same cohort of customers in the prior-year period. So, a reading of more than 100% means that customers spent more money. This is also evident from the fact that the number of subscription customers using five or more CrowdStrike modules stood at 62% last quarter, up from 59% in the year-ago quarter.

The only reason why CrowdStrike stock may have slipped despite putting up solid numbers is because of the slower growth that it is forecasting this fiscal year. After all, the company delivered 54% revenue growth in fiscal 2023, so the 35% jump for the current year isn't good enough to justify the stock's rich valuation.

CrowdStrike is trading at 14 times sales, which is higher than the price-to-sales ratio of 12 it was trading for at the end of 2022. The expensive multiple can be attributed to the stock's impressive gains in 2023. But there may now be a chance for investors to buy it at a relatively cheaper multiple as the stock could remain under pressure following its latest results. This is an opportunity that investors should consider grabbing as notable catalysts such as AI and the company's large addressable market could help it regain its mojo and accelerate growth.

Generative AI could help accelerate its growth

AI was a central theme of CrowdStrike's latest earnings call. That's not surprising as the application of this technology in cybersecurity is expected to grow at an annual pace of 24% through 2030, generating more than $94 billion in annual revenue at the end of the forecast period.

CrowdStrike is looking to make the most of this opportunity with its latest generative AI cybersecurity platform, Charlotte AI. This platform will allow CrowdStrike users to ask simple questions (such as enquiring about potential risks with a particular application), get an idea about the threats that their organizations face, and check if they are protected against specific types of threats, among other things.

Charlotte will also enable organizations to automate tasks such as data collection and threat detection using simple conversational prompts. In simpler words, CrowdStrike believes that Charlotte AI will aid security analysts' capabilities and allow organizations to derive "faster results, better security outcomes, and lower overall costs."

As such, it won't be surprising to see customers adopt CrowdStrike's latest AI-powered cybersecurity tool and spend more money on the company's solutions. This could help CrowdStrike deliver stronger-than-expected growth and outperform analysts' targets, which are already pointing toward sizable jumps in its top and bottom lines over the next three years.

Data source: YCharts. YOY = year over year.

In all, CrowdStrike looks like a top growth stock to buy right now, especially considering that the company sees its total addressable market hitting a whopping $158 billion by 2026. This indicates that CrowdStrike is scratching the surface of a massive market opportunity, which should allow it to continue growing rapidly for a long time.