It's been a rough couple of weeks for CrowdStrike (CRWD 1.79%).
The leading endpoint-cybersecurity provider experienced the biggest crash in its history and what some believe could be the biggest IT failure ever.
A buggy software update from CrowdStrike crashed Microsoft Windows operating systems around the world, leading to major disruption in global industries such as airlines, broadcasting, and retail.
As a result, CrowdStrike stock crashed as well, falling 11% on July 19 and another 13.5% on July 22 as problems with its software lingered after the weekend. By the end of the week, the stock had lost another 3%, falling more than 25% from before the outage happened.
The sell-off in the stock seems deserved given the reputational damage to the company and the potential challenges to retaining and adding new customers.
However, savvy investors also know that these types of sell-offs can be good buying opportunities as the stock could recover those losses as coverage of the incidents fades and CrowdStrike returns to business as usual.
So should you buy CrowdStrike now or wait until the company's status is clearer? To answer that question, let's take a look at the state of play with CrowdStrike following the outage.
Image source: Getty Images.
The path to recovery
There is some good news for CrowdStrike investors last week. CEO George Kurtz said on Friday that nearly all (or roughly 97%) connected devices were back online.
CrowdStrike will have to do damage control to reassure customers that it's reliable and that the problem, which was an error in its software update and not a cyberattack, won't happen again.
However, there are reasons to think that the company can overcome the mistake over time. First, the increased awareness around CrowdStrike and global IT infrastructure could lead to more hiring and spending around cybersecurity and IT infrastructure. Companies may also choose multiple cybersecurity services, creating redundancies to protect themselves.
There's another reason to believe that CrowdStrike stock can bounce back from the recent setback.
Spending on cybersecurity isn't going away and will continue to grow. Customers have a choice of CrowdStrike or a competitor like Palo Alto Networks, SentinelOne, and even Microsoft's own endpoint-cybersecurity software.
But other companies have also faced challenges, such as outages and negative media attention, and the stocks have rebounded.
One of the best-known data breaches was of Equifax in 2017, exposing the personal information of 147 million people. The stock plunged on that news but had recovered nearly all of those losses six months later.
Cloud-identity specialist Okta has also sustained multiple breaches since 2022, but the stock has crept higher since then.
That's not to say that the CrowdStrike incident doesn't matter. Its reputation has taken a hit. Some customers may choose to switch to a rival, and the company may have to spend more on controls to make sure this doesn't happen again and assuage customers of the same.
NASDAQ: CRWD
Key Data Points
Should you buy CrowdStrike now or wait?
CrowdStrike stock deserves to take a setback for the faulty software update, but a 25% haircut seems excessive.
The cybersecurity stock is still expensive, trading at a price-to-sales ratio of 19, but it's growing quickly with revenue up 33% in its most recent quarter and has strong profit margins after adjusting for share-based compensation.
Given its lofty valuation, CrowdStrike could fall further, but the sell-off driven by a temporary news event looks like a good buying opportunity for the stock. A smart approach would be to open a small position but keep some cash in reserve to buy the stock if it falls further.
The long-term picture still looks bright for CrowdStrike despite the recent setback. Don't be surprised to see the stock start to rebound in the coming weeks as investors look forward to its earnings report in a month.
