Founded in 2011, CrowdStrike (CRWD 2.03%) has quickly risen to become one of the leading players in the cybersecurity industry. The company's Falcon platform is built around artificial intelligence (AI) technologies that help identify threats and prevent computers, mobile devices, and other hardware from being used to breach and exploit networks.
But while CrowdStrike's share price is up roughly 164% from market close on the day of its initial public offering in June 2019, the stock has seen some volatile trading in conjunction wtih macroeconomic pressures that spurred sell-offs for growth stocks. Despite regaining some ground this year, CrowdStrike still trades down 48% from its peak.
So what comes next for the cybersecurity leader? Let's examine the bullish and bearish catalysts that could shape how the stock performs going forward.
Green flag: CrowdStrike has huge expansion potential
CrowdStrike is providing best-in-class cybersecurity solutions and looks poised to benefit from growing demand. While the company is already the leader in its service niche, the market remains highly fragmented and the business has a big opportunity to consolidate share.
With guidance for roughly $3 billion in sales this year, CrowdStrike expects to reach just 4% of the $76 billion addressable market in 2023. Even with macroeconomic headwinds tamping down on the company's growth, the cybersecurity specialist is gaining market share and has opportunities to capture a much bigger piece of the pie. But crucially, the overall size of the pie that CrowdStrike can grab is growing as well.
Based on the company's existing service offerings, management expects that its total addressable market will expand to $97.8 billion in 2025 -- good for a 13% compound annual growth rate. After factoring in the effect of upcoming growth drivers and intiatives, the opportunity looks even better.
Thanks to continued growth for existing services, new product launches and initiatives, and other unfolding opportunities in cloud cybersecurity, CrowdStrike anticipates having a total addressable market of $158 billion in 2026.
The cybersecurity specialist has been growing sales and earnings at an impressive pace, but it's still just scratching the surface of its long-term market opportunity.
Red flag: Slowing growth raises valuation questions
While CrowdStrike stock has pulled back substantially from its valuation high, there's still a lot of strong performance already baked into the company's stock price.
CRWD PE Ratio (Forward) data by YCharts
After growing revenue 54% and non-GAAP (adjusted) earnings 130% last year, the company anticipates some significant growth deceleration this year. While its target for revenue to increase 34% this year and adjusted earnings to rise 49% are hardly cause for alarm when it comes to the health of the business, it's important not to dismiss the importance that valuation has when it comes to determining investor returns.
While the market has generally been warming back up to growth stocks lately, it's possible that macroeconomic trends could once again cause investors to become more risk-averse. CrowdStrike's forward-looking valuation could set the stage for poor stock performance if bearish momentum retakes the broader market or if the company's business performance falls short of expectations.
Should investors buy CrowdStrike?
While CrowdStrike's valuation profile makes it a relatively high-risk stock, I think that investors who take a buy-and-hold approach will ultimately see strong returns on money they put behind the company. The long-term demand outlook for services in CrowdStrike's corner of the cybersecurity space is very promising, and there are signs that the software specialist is building competitive advantages that will have big payoffs over the long term.
For risk-tolerant investors seeking stocks capable of delivering market-crushing returns, I believe this stock is a smart buy right now.
