If your brand is associated with what some are calling the "largest IT outage in history," it's hard to underestimate the damage it might bring to your business in both the short and long terms. That's the situation CrowdStrike (CRWD 5.77%) finds itself in right now after a massive outage that took place last month.
While the company has addressed the issue with the problematic update and is trying to alleviate customer concerns, the stock has been stumbling in recent weeks. It's debatable how well it may recover from these current headwinds or how long it will take to rebuild trust with its customers. At the very least, it could be a turbulent time for shareholders in the short run.
Investors may be tempted to take a chance on CrowdStrike and buy the cybersecurity stock on the dip. But rather than taking that risk, consider a potentially better alternative -- buying shares of rival Palo Alto Networks (PANW 5.97%) instead.
NASDAQ: PANW
Key Data Points
Palo Alto is coming off a strong fiscal year with more growth ahead
On August 19, Palo Alto reported its fourth-quarter earnings for the period ending July 31. It was a strong finish for the company's fiscal year as its sales rose by 12% to $2.2 billion for the period. For the full year, the top line rose by 16%, climbing just above $8 billion. Palo Alto's operating income totaled $683.9 million for the full fiscal year and rose by an impressive 77%.
For the new fiscal year, the company sees more growth opportunities ahead, projecting that its top line will grow by at least 13% to $9.1 billion. The business has been focusing on "platformization" to generate more growth. This involves the bundling of services (including artificial intelligence solutions) to add more value for its customers. Palo Alto sees this as a way to provide management with a "simplified" approach to consolidating cybersecurity tools into a single platform, helping to reduce overhead and drive more efficiency.
The stock trades at a much more attractive valuation than CrowdStrike
Year to date, shares of CrowdStrike are up just 4% after its recent sell-off, while Palo Alto stock has risen by 16%. But despite the better gains thus far, Palo Alto may still possess more upside than CrowdStrike.
Palo Alto is trading at more than 50 times its estimated future profits (based on analyst estimates). While that's not exactly cheap, it's still a more attractive multiple than the 60-plus times future profits that CrowdStrike is trading for.
NASDAQ: CRWD
Key Data Points
What's also appealing about Palo Alto is its impressive margins. Not only does it have a bigger business than CrowdStrike, but its operating margins also have typically been better. That can lead to a better bottom line and more attractive earnings multiples as the business expands its top line.
CRWD Operating Margin (Quarterly) data by YCharts.
Palo Alto is a less riskier than CrowdStrike
Palo Alto doesn't have as many question marks hovering over its cybersecurity business, its valuation is more attractive, and its margins look better than CrowdStrike's. When all that is factored in, along with the possibility that Palo Alto may be able to lure some customers away from its rival, Palo Alto is a slam-dunk buy right now.
Rather than hoping CrowdStrike can recover from one of the largest IT outages ever, investors are better off going with more of a sure thing in Palo Alto. The company has an incredible opportunity right now to take advantage of CrowdStrike's challenges and win over some big customers. As a result, it wouldn't surprise me if Palo Alto generates better-than-expected growth numbers in the new fiscal year.
