CrowdStrike (CRWD 1.76%) stands out among its competition. While it's a cybersecurity software company, it's also one of the best-performing software businesses regardless of industry.
CrowdStrike's momentum is unlike anything in software, which makes it an intriguing stock. I've got three great reasons why you should consider buying CrowdStrike stock right now, but there's also one red flag that investors must consider.
Reason to buy 1: CrowdStrike is seeing strong demand while others aren't
CrowdStrike grew substantially from its initial offering of endpoint protection software. Endpoint protection software protects network endpoints like laptops from cyber threats. While this is a fairly common offering, what separates CrowdStrike from the competition is that it pioneered using artificial intelligence (AI) to pinpoint what activity constituted a threat and what was normal. This allowed CrowdStrike to create a lightweight and easily deployable product, and it became a hit.
Now, CrowdStrike has more than 28 products, known as modules, for its Falcon platform. These range from endpoint to cloud to identity protection and nearly everything in between. This is part of why CrowdStrike has emerged as an industry leader, as it has become very close to a one-stop shop for all cybersecurity needs. In fact, 65% of customers have at least five modules in their contracts.
But this strength is an anomaly. Competitors like Palo Alto Networks are seeing less demand, and partners like Okta also see the same headwinds. If you can pinpoint a company that can stay strong when others in the same industry are weak, then you've found a stock with the potential to be a massive winner.
Reason to buy 2: CrowdStrike's growth is phenomenal
CrowdStrike crushed its earnings results for the first quarter of fiscal year 2025 (ending Jan. 31), with annual recurring revenue (ARR) rising 33% from a year ago to $3.65 billion. It's also an efficient business, converting 35% of revenue into free cash flow (FCF) for the quarter. While that figure drops when stock-based compensation is accounted for, it's still an impressive mark as few companies reach that level of cash generation.
CRWD Free Cash Flow (Quarterly) data by YCharts
Reason to buy 3: CrowdStrike's growth isn't slowing down
For the second quarter, CrowdStrike's management expects about $960 million in revenue. That's a 31% year-over-year growth rate, indicating that CrowdStrike's business is looking great for the next quarter.
Additionally, management raised full-year guidance from $3.96 billion to $3.99 billion. Investors love a classic beat and raise quarter, and CrowdStrike is delivering those quarter after quarter, while its competition (and partners) are not.
But considering CrowdStrike's success and impressive financial picture, the stock's price shouldn't surprise anyone.
Reason to avoid: CrowdStrike's stock is richly valued
To evaluate CrowdStrike's stock, I'll consider the price-to-sales (P/S) and price-to-free-cash-flow ratios. The price-to-earnings (P/E) ratio isn't applicable here because CrowdStrike isn't close to being optimized for profits.
From the P/S perspective, CrowdStrike isn't as expensive as it was in the bubble of 2021.
CRWD PS Ratio data by YCharts
But make no mistake, 26 times sales is an expensive price to pay for a stock. The growth assumptions that come with that price tag are aggressive, but with other software companies like Palantir trading at similar levels but with less growth, CrowdStrike's stock doesn't look so bad.
Despite CrowdStrike turning an impressive 35% of revenue into FCF, it's still a very pricey 84 times FCF. That's not cheap, no matter how you slice it, and it shows that investors have priced in several years of strong growth into the stock.
There's no way to sugarcoat it. CrowdStrike is an expensive stock because of how successful it is. However, this shouldn't stop you from buying CrowdStrike stock, as management predicts it can reach an ARR of $10 billion. If that happens, CrowdStrike will be a steal at these levels. With how vital cybersecurity software is becoming, plus CrowdStrike's market leadership, I have no doubt that CrowdStrike can reach this lofty goal.
