Until recently, CrowdStrike (CRWD +2.19%) stock was trading at record highs. The success of its endpoint security product was driving greater use of its Falcon platform -- and more interest from investors, who had pushed its valuation to stratospheric levels.
However, investors began to question their thesis after a software update for its Microsoft-based systems led to a massive global IT outage. Amid the fallout, CrowdStrike stock dropped 11% on Friday and another 13% in Monday's trading session.
Yet despite the market's now-bleaker view of the company, this experience may ultimately benefit CrowdStrike shareholders.
CrowdStrike stock after the outage
To put it simply, established CrowdStrike shareholders may come out ahead because the buying opportunity that this debacle has created will lead more investors into the stock. The stock dropped approximately 35% over the course of just nine trading sessions, so investors who had been holding out for a lower price may decide that now is the time to buy.
NASDAQ: CRWD
Key Data Points
Moreover, history shows that companies that address such issues tend to win back the confidence of investors over time.
For example, CrowdStrike peer Palo Alto Networks lost 28% of its value when investors turned against its business strategy in February after the company delivered its fiscal Q2 2024 earnings report. However, Fortune Business Insights has forecast a 14% compound annual growth rate (CAGR) for the cybersecurity industry through 2032. The prospect of steadily rising demand for cybersecurity appears to have rescued Palo Alto -- the stock is now down by only around 10% since the day before that February earnings report.
A similar updraft could buoy CrowdStrike stock over time. Assuming management moves quickly to rectify this mistake, investors will again focus on industry growth trends, which should eventually bode well for the company.
The state of CrowdStrike stock
Despite its long-term prospects, investors should not try to predict how CrowdStrike stock will perform in the short term.
For one thing, investors are still processing the extent of the IT outage and its implications. Anything could still happen to the cybersecurity stock in the near term, and as the second trading session since the outage indicated, the selling may not be over.
Additionally, CrowdStrike stock remains pricey. Since the company only recently transitioned to profitability, investors might be willing to overlook its forward price-to-earnings ratio of about 66 (at this writing). What they might find harder to accept is its price-to-sales ratio of 20. By that metric, it's a significantly more expensive stock than its most direct competitors.
CRWD PS Ratio data by YCharts.
In this latest period of uncertainty, that multiple could slide even further when accounting for falling revenue growth rates. In its fiscal 2025 first quarter (which ended April 30), CrowdStrike's revenue rose 33% year over year to $921 million.
While that is well above the forecast CAGR for its industry, it is slightly below the 36% growth rate the company reported in its fiscal 2024. Additionally, before the outage, the company had forecast revenue for fiscal 2025 of $3.98 billion to $4.01 billion. At the midpoint of that range, its growth rate would be 30%, a factor that could prompt further selling.
How to invest in CrowdStrike
Given CrowdStrike's current state, interested investors should consider picking up its shares. The company is a leader in its industry, and it is unlikely that one incident will change that.
However, how one buys CrowdStrike stock is meaningful, too. I would suggest that investors should not buy the entire stake they intend to build all at once. If you're interested in adding this stock to your portfolio, now would be an excellent time to start doing so through dollar-cost averaging.
The massive drop in the second trading session after the outage illustrates why. An investor who made an all-in move on the day of the outage would have been down significantly just 24 hours later. Conversely, those who buy smaller allotments now will own a position even if it recovers rapidly. The dollar-cost averaging approach also allows investors to add more shares with the same amount of capital should prices continue falling, mitigating investor risk during this volatile time.
CrowdStrike stock going forward
Ultimately, the company's shareholders may be better off for experiencing this stock price decline. Admittedly, glaring public failures and a lower stock price are not the sorts of things investors crave from the companies they invest in. And if investors wind up dissatisfied with how management responds to this event, the negative reverberations could persist for some time.
However, if CrowdStrike effectively adjusts its course, investors who had been waiting on the sidelines now have a lower price. This will allow them to begin dollar-cost averaging, leaving them with a base of support as the market moves on from the outage. Assuming it reclaims its all-time high, the stock could have more shareholders and more demand as the investment case for CrowdStrike continues to improve over the long term.
