Nasdaq’s steep correction pulled CrowdStrike Holdings (NASDAQ:CRWD) stock down by around half its price from the peak. Value investors seeking growth stocks might look at CRWD stock as a stock at a fire sale. On closer inspection, the software security giant is down for many reasons.
For now, markets are fearful of over-valued stocks. That sentiment may quickly reverse. Fundamentally, have CrowdStrike’s strong prospects changed?
CRWD Stock Strongest Among SAAS
Among the software as a service (or SAAS) stocks, CrowdStrike has the strongest prospects. Ransomware and hacking are ongoing risks that companies will face at increasing levels. Customers need to protect their technology environment and need CrowdStrike’s solutions.
In the third quarter, the company posted annual recurring revenue growing by 67% year-over-year, surpassing a $1.5 billion milestone. CrowdStrike owes its strength to the flywheel effect of its platform. A flywheel effect happens when a small win accumulates over time. This creates momentum that keeps demand for CrowdStrike’s business growing. Here are ten lessons on using this effect to grow a business.
CrowdStrike reported revenue of $380.1 million, up by 63% Y/Y. Its net income of a GAAP net loss of $50.5 million may spook investors in today’s markets. Investors are fearful of companies that are not profitable. Still, it posted non-GAAP earnings of 17 cents.
For the fourth quarter, CrowdStrike expects total revenue in the range of $406.5 million to $412.3 million. And for 2022, total revenue will top up to $1.43 billion. The company expects Non-GAAP EPS of between 57 cents and 59 cents. Once again, the fearful market will ignore non-GAAP figures. For example, Q3/2021 non-GAAP numbers excluded stock-based compensation of $86.67 million and amortization of acquired intangible assets of $3.34 million.
Opportunity
CrowdStrike builds its security strength by collecting single data points and analyzing them. It may reuse that data as it collects more information. This happens in seconds or faster. It results in new workload builds that strengthen its cloud security platform for clients.
Customers get strong cloud security and identity protection. In log management markets like health care or government, CrowdStrike is an appealing solution. Recently, on Dec. 1, 2021, Cybersecurity and Infrastructure Security Agency (CISA) selected CrowdStrike to protect the nation’s critical endpoints and workloads. Chief Executive Officer George Kurtz said, “This partnership will arm CISA and government agencies with CrowdStrike’s powerful technology and elite human expertise to stop sophisticated attacks and protect our nation’s critical infrastructure.”
With Falcon XDR, which the company describes as the “next frontier for detection and response,” CrowdStrike is well-positioned to grow its market share in the endpoint security market.
Related Investments
Despite falling to a 52-week low, CRWD shares still trade at around 30.46 times price-to-sales. The stock is only slightly more expensive than Okta (NASDAQ:OKTA) at 27 times sales. SentinelOne (NYSE:S) started trading on the public markets less than a year ago. Its shares trade at around 64 times sales.
Investors may consider Palo Alto Networks (NASDAQ:PANW) instead. PANW stock trades at 11.3 times sales.
P/S multiples are a measure of the market’s willingness to pay for a stock. As long as CRWD’s strong business momentum outpaces that of its competitors, investors should not worry too much about valuation.
On Stockrover, CRWD shares have a fair score on the three metrics of quality, value, and growth. Watch for the value score to rise should the stock price fall in the coming weeks. In addition, CrowdStrike’s growth score will improve if the company reports stronger revenue growth and raises its outlook.
CRWD stock scores fair grades.
Risks
Growth investors did not expect the steep sell-off in CrowdStrike shares that began in November 2021. Few predicted Nasdaq’s correction would last, either. The negative market sentiment may persist longer. This would hurt CRWD’s stock performance.
When the company reports fourth-quarter results in March, the stock may re-establish an uptrend. Markets have a short-term memory, forgetting that CrowdStrike is one of the fastest-growing technology stocks. It has a differentiated platform that includes zero trust, Humio (log management), and XDR. Those are game-changing products that will increase the rate of adoption for CrowdStrike solutions.
A decline in ransomware attacks might slow CrowdStrike sales. The chances of such attacks falling are low. Governments are growing increasingly wary of malware attacks. Cybersecurity and Infrastructure Security Agency (CISA’s) support for CrowdStrike will set the company apart from the competition.
Your Takeaway
Technology investors should take advantage of the weakening market conditions to build positions in the strongest firms with the most durable growth rates. CrowdStrke is one of them. The company’s fundamentals did not change before Nasdaq’s strong run-up. It is the same today.
The stock happens to trade at a better discount.
When investors return to growth stocks, they will consider CRWD shares first.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.