Depending on who you talk to or how you define it, we may already be at the start of a new bull market. While the market's big rally this year has mostly been driven by a handful of mega-cap companies, including Apple, Microsoft, and Nvidia, there are still many promising growth stocks that currently trade at big discounts compared to their previous highs. And these growth stocks have the potential to power the next phase of the stock market's rally.
Despite posting strong business results and enjoying an early leadership position in artificial intelligence (AI)-powered cybersecurity services, CrowdStrike (CRWD 2.03%) stock is trading more than 50% off its peak it attained in Nov. 2021. The next sustained bull market should lift valuations for growth stocks, and CrowdSrike is a prime candidate to ride the bull market wave.
CrowdStrike is a category leader
CrowdStrike stands as the worldwide leader in cybersecurity services that prevent hardware devices from being used to exploit networks.
- Its Falcon software platform uses AI to identify and shutdown cyberattacks on computers, mobile devices, and servers.
- The company's artificial-intelligence capabilities have helped it become the market leader in its industry.
- Strength in AI will likely help the business continue to gain share in a market that looks poised for big growth over the long term.
Unlike many other corners of the software industry, the cybersecurity industry remains highly fragmented. That's actually great news for CrowdStrike and investors who plan on holding long-term positions in the company's stock.
This growth story is still just heating up
CrowdStrike has managed to grow revenue at an impressive clip since going public in 2019.
CRWD Revenue (TTM) data by YCharts.
With 42% year over year sales growth in the first quarter, the business is growing significantly faster than its market and continuing to gain share. Even better, the company's total addressable market (TAM) is on track to expand at an eye-catching pace.
With guidance for roughly 34% annual sales growth, CrowdStrike expects to tally up approximately $3 billion in sales this year. Even though the company is the current leader in cloud-based endpoint protection and other related cybersecurity services, that suggests that the company is on track to win just 4% of its estimated $76 billion addressable market.
Management anticipates that the addressable market for its current service offerings alone will have grown at a 13% compound annual growth rate to reach $97.8 billion in 2025, but the company is on track to launch additional services and branch into new categories. Between ongoing growth for its existing offerings and new product launches and initiatives, CrowdStrike sees its TAM jumping to $158 billion by 2026.
CrowdStrike's path to delivering huge returns
Even though CrowdStrike is still very much in growth mode and has continued to make substantial investments in research and development and marketing, the company has managed to serve up consistent profits on non-GAAP (adjusted) basis.
Trading at roughly 61 times this year's expected adjusted earnings, the stock may not be a great fit for more risk-averse investors, but it could go on to deliver market-crushing returns for those who take a buy-and-hold approach.
CRWD PE Ratio (Forward) data by YCharts.
While the company's growth-dependent valuation opens the door for its stock to see volatile trading in the face of macroeconomic and business-specific developments, shares don't look prohibitively valued given the business's strong earnings growth and competitive positioning. After growing adjusted earnings 130% last year, the company's midpoint forecast calls for growth of 54% this year -- and there's still massive potential for continued expansion further down the line.
The existing strengths of the Falcon cybersecurity platform are laying the foundation for CrowdStrike to expand into new verticals, and it's likely that the business will facilitate and benefit from convergence trends in its industry. So long as the underlying services are of high quality and competitively priced, cybersecurity customers have incentives to get services from a smaller number of providers.
The ability to share resources and data between different services and platforms opens the door for CrowdStrike to expand its competitive edge in vital service categories. The company is already an industry leader, but it's still in the early stages of capitalizing on massive opportunities in the cybersecurity industry.
