CrowdStrike Stock: What’s Behind Its Impressive Rally?

Author: Aditya Raghunath

Estimated read time: 3 minutes

Publication date: 13th Jul 2020 13:55 GMT+1


Cyber-security company CrowdStrike (NASDAQ: CRWD) went public a year back at a price of $34 per share. The stock is currently trading at $116, indicating returns of 240% in just over 12 months. But, similar to most tech IPOs, Crowdstrike stock has had a volatile run since its IPO.

CRWD stock rose to $96 per share in August 2019 before falling to a record low of $31.95 in March 2020. However, it has made a stellar comeback in the current environment that is increasingly certain. In 2020, CRWD stock has returned 134%, compared to the S&P 500 and NASDAQ gains of -1.3% and 14.7% respectively.

 

Crowdstrike - an overview

Crowdstrike was founded in 2011 and the company aims to reinvent security in the cloud era. It is focused on leveraging the network effects of crowdsourced data applied to modern technologies such as artificial intelligence and cloud computing. The company built its Falcon platform to detect threats and prevent cyber-security breaches.

With the Falcon platform, it created a cloud-native security solution to protect workloads across on-premise virtualized and cloud-based environments that run on a multitude of endpoints including laptops, desktops, servers, and IoT (internet of thing) devices.

Crowdstrike intends to define a new category called Security Cloud and transform the security industry by delivering comprehensive breach protection solutions against cyberattacks on the endpoint that are increasingly getting sophisticated.

The company offers 11 cloud modules on the Falcon platform via a SaaS (software-as-a-service) based business model that spans multiple security markets including endpoint security, threat intelligence, and security and IT operations.

 

Expanding addressable market

There are architectural limitations when it comes to using legacy security products due to a dynamic threat landscape which is driving the need for a new approach to security. Organizations are becoming more distributed due to cloud adoption, workforce mobility, and an increase in the number of connected devices. They are also adding more workloads to a myriad of different endpoints beyond the traditional security perimeter which exposes them to cyber-attacks.

According to a report from Markets and Markets, the global endpoint security market is forecast to grow from $12.8 billion in 2019 to $18.4 in 2024, a compound annual growth rate of 7.6%.

The report states, “Most vendors in the endpoint security market offer cloud-based endpoint security solutions. The adoption of cloud-based endpoint security solutions is expected to grow due to benefits, such as easy maintenance of generated data, cost-effectiveness, scalability, and effective management of these solutions. The cloud deployment mode offers web-based management and enterprise-class protection for endpoints. It allows users to deploy endpoint protection without the need for an IT staff to manage the software.”

 

Crowdstrike valuation, target price and more

Crowdstrike is one of the top players in the endpoint security space. However, it also competes with giants such as Microsoft (NASDAQ: MSFT), Symantec, Cisco (NASDAQ: CSCO), FireEye (NASDAQ: FEYE), and others. In the first quarter of fiscal 2021, CrowdStrike sales rose 85% year-over-year to $178 million and forecast 2021 sales between $761 million and $773 million, a growth of 59% at the midpoint forecast.

The company’s robust growth prospects and recent stock price rally have meant that CRWD is trading at a sky-high valuation. It has a forward price to sales multiple of 32.5. Further, the company is still unprofitable on a non-GAAP basis which makes it vulnerable when market sentiments turn pessimistic.

Analysts tracking Crowdstrike stock have a 12-month average target price of $108.43 which is 7% below its current trading price. However, Crowdstrike’s SaaS-based business model ensures a steady stream of recurring sales which will help the company generate predictable sales across business cycles. This, coupled with a rapidly expanding addressable market make it a solid bet for long-term investors.


Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.com. The observations he makes are his own and are not intended as investment or trading advice.