Shares of CrowdStrike (CRWD +4.33%) have been on a tear this year as investors focus on the cybersecurity leader's growth prospects. The company, which sells cloud-based security software that helps businesses protect their data and devices, has seen impressive growth this year. Helping bolster the bull case, management recently laid out some impressive long-term financial targets.
That backdrop, combined with upbeat commentary on the company's AI (artificial intelligence)-native platform, has helped the case for the stock. But has the stock's valuation gotten ahead of itself? Or are shares still attractive?
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Growth remains impressive
In its second quarter of fiscal 2026, CrowdStrike grew revenue 21% year over year to $1.17 billion, an acceleration from the 20% growth it posted in the fiscal Q1.
Fiscal Q2 subscription revenue rose 20% as customers continued to add more modules and expand their spending on the Falcon platform. Net new annual recurring revenue climbed to a record $221 million, and total annual recurring revenue reached $4.66 billion, up 20% year over year.
Highlighting how lucrative CrowdStrike's business is on a cash flow basis, the quarter's free cash flow came in at roughly $284 million, or 24% of revenue.
In CrowdStrike's fiscal second-quarter earnings call, chief financial officer Burt Podbere highlighted strong demand for the company's AI-native Falcon platform and Falcon Flex subscription model. That demand helped increase the number of large deals and pushed the count of customers with at least $1 million in annual recurring revenue to new highs. Even more, the company's total deals valued at over $10 million doubled year over year.
Looking ahead
CrowdStrike's business seems to be inflecting. Indeed, management said it expects at least 40% year-over-year growth in net new annual recurring revenue in the second half of fiscal 2026.
For the third quarter of fiscal 2026, CrowdStrike expects revenue to grow 20% to 21% year over year.
But not everything is positive. The overhang from last year's high-profile outage continues to drag on the business. Management expects outage-related incentives to trim between $10 million and $15 million from revenue each quarter. In addition, the company plans to make $51 million in cash payments tied to the incident in fiscal Q3. But as these outage-related costs fade into the rearview mirror, CrowdStrike will finally escape this headwind, and this should ultimately help growth.
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Key Data Points
Worth more than $500 per share?
With such strong year-to-date growth and upbeat expectations from management for the second half of the fiscal year, shares have surged this year. As of this writing, they are up more than 50%. That move has lifted CrowdStrike's market capitalization to more than $130 billion and pushed its price-to-sales ratio to more than 30.
That multiple notably sits well above the roughly mid-20s range investors were paying for most of the past year -- a level that was already a stretch, even for a company with CrowdStrike's growth profile.
Of course, the bulls would likely counter, saying that the company has plans to more than double its annual recurring revenue to $10 billion by fiscal 2031. But I still don't believe this is enough to justify the growth stock's current valuation. Sure, if CrowdStrike pulls this off, there's always a chance that the stock does decent from here. But the current price doesn't leave much room for any slip-ups -- an important factor investors should look for when buying shares of a company in a fast-changing and intensely competitive industry.
The risks are real. Deep-pocketed tech giants like Microsoft offer cybersecurity services as well -- and they could potentially take market share by outspending CrowdStrike on product development, advertising, or both -- or by bundling more of its cybersecurity services with other offerings.
Overall, CrowdStrike is a great company. But the current price doesn't leave enough margin of safety, in my opinion.
