Growth stocks can be great options for investors because they offer the chance for high growth in a relatively short amount of time. The volatility and price swings along the way aren't for the faint of heart, but when it works out, there's plenty of money to be made.
There are countless growth stocks on the market, but many are going nowhere fast. If you're looking for a growth stock with a proven track record of quality and strong financial performance, look no further than cybersecurity company CrowdStrike (CRWD 2.03%).
A pioneer in using AI for cybersecurity
In the tech world, endpoints are any physical device that connects to a network. This includes desktops, laptops, mobile phones, tablets, servers, routers, and many other products. As I'm sure you can imagine, these endpoints are prime targets for people looking to perform cyberattacks. That's where CrowdStrike and other cybersecurity companies come into the picture.
CrowdStrike is a leader in cloud-based endpoint security, but where it stands out is in its use of artificial intelligence (AI) to automate the process. CrowdStrike pioneered pure AI-based solutions in cybersecurity with its first product in 2011.
Fast forward to now, and plenty of companies use AI for cybersecurity. What gives CrowdStrike a leg up is all the relevant data it's been collecting over the past 12 years. More use means more data, more data means more efficient models, and more efficient models mean it's more attractive for customers.
It's a lucrative cycle that CrowdStrike has a jump start on over competitors starting more recently.
Cybersecurity is no longer optional for many businesses
The more the world transitions to being online and digital, the more cybersecurity becomes a necessity rather than a good-to-have, optional expense. When you see the costs of cyberattacks for even small businesses, you'll understand why cybersecurity has become like insurance for any business operating online.
According to IBM, the average cost globally of a data breach in 2023 is $4.45 million, up 15% in just three years. In the U.S., it's much higher at well over $9.4 million. The cost also varies a lot by industry. The average data breach in healthcare was more than $10.9 million, and the financial sector came in second, averaging $5.9 million.
The financial cost of cyberattacks can be a blow to businesses, but the reputational hit could have a lasting effect for some. Trust is hard to build with consumers but very easy to lose. Imagine you're a customer of a company that lost your data in a cyberattack. After that, you'd likely think twice about using them -- especially if there are other alternatives that have yet to lose that trust.
CrowdStrike's financials are improving at an impressive rate
A good indicator of how well CrowdStrike's solutions work is the pace at which its revenue has been increasing. In its Q2 fiscal year 2024 (ended July 31), CrowdStrike made $731.6 million in revenue, up 37% year over year (YOY).
CRWD Revenue (Quarterly) data by YCharts. YOY = year over year.
Although this YOY revenue growth is lower than in previous quarters, it's impressive for a company valued at more than $38 billion. A testament to CrowdStrike's growing efficiency is the rate at which it has grown its net income compared to revenue. Its revenue is up an impressive 1,000% in the past five years, but its net income has outpaced it, up over 1,600%.
Since CrowdStrike is a subscription-based business, investors should also consider its annual recurring revenue (ARR) because it gives an idea of how sustainable its revenue growth is over the long haul. In Q2, the company added $196 million in net new ARR, bringing it to $2.93 billion (up 37% YOY).
Investors should ease into a stake
So far, CrowdStrike's had an impressive 2023, up more than 55% (as of Sept. 25). However, this recent surge has pushed the stock into what many would consider expensive territory. Its price-to-sales ratio tops 14.4, leading competitors like SentinelOne, Palo Alto Networks, Fortinet, and Zscaler.
CRWD PS Ratio data by YCharts. PS Ratio = price-to-sales ratio.
Despite the valuation, CrowdStrike should have plenty of time to grow into it. For investors concerned about investing at the company's current valuation, a good option would be dollar-cost averaging your way into a stake. That will help protect against the inherent volatile nature of the stock -- and growth stocks in general.
