During a cyber war, it can be useful to own CRWD shares
Latest drop in tech stocks prompts many investors to take a close look CrowdStrike Holdings (NASDAQ:CRWD) Stock.
CrowdStrike is an IT security company founded almost ten years ago with a “cloud first” model. It has since grown into one of the leading providers of endpoint security. Revenue is expected to grow by more than 50% this year, to around $ 1.5 billion. There may even be profits, even if they are small.
Leadership in a popular niche has made CrowdStrike an extremely profitable investment. The market capitalization is $ 54.5 billion. But when the sell orders come in, stocks selling for 36 times income are often the first to be sold. Shares are down 12% since late August.
The question of the day is, buy the dip?
Leadership in question
Computer security is a tough business. Leadership can easily be overcome with new techniques. Growth can be great, but companies must invest before it grows. Losses are the norm. Stocks can be volatile. This is why it makes sense to wait for a correction, like the one currently underway, before jumping on it.
The question for CrowdStrike is whether it can maintain its leadership in the face of new competitors like SentinelOne (NYSE:S), which went public in June. SentinelOne’s approach is to use an artificial intelligence algorithm to get ahead of the bad guys. The stock has outperformed CrowdStrike’s since its IPO.
Goldman Sachs (NYSE:SG) recently downgraded CrowdStrike based on its price. Analyst Brian Essex has called SentinelOne his favorite game when it comes to endpoint security.
While tech stocks rolled in September, SentinelOne rolled more, down 23% since September 16. CrowdStrike has only fallen 4% since then.
Always being boosted
The CRWD stock still has its boosters. One is our Louis Navellier. Second quarter profits exceeded estimates, he wrote, with 1,660 new customers subscribed.
An executive order asking agencies to strengthen cybersecurity was followed by CrowdStrike listing its Falcon Forensics on the government govcloud. Falcon Forensics has also received FedRAMP clearance, making purchasing easier for bureaucrats. This means that more government revenue is on the way. Navellier called the title comfortably in his buying zone.
The Navellier article also cited Goldman Sachs’ rating as positive. Essex has maintained its price target of $ 305, which is 26% above its current trading level. The Navellier price target is cautious, lower than the average price target at Tips, which is $ 314.
What impresses our Mark Hake is CrowdStrike’s cash flow. The company had $ 256 million in cash flow from operations in the July quarter.
There is something more important to me than the graphics. This is if CrowdStrike can stay ahead of its competition.
Integration with UiPath (NYSE:PATH) gives Falcon new capabilities to take action against software “bots,” automated programs that are now the world’s greatest security threat.
The company’s recent Overwatch report says hackers are now acting on breaches three times faster than before, with bigger threats coming from China. This means more demand for systems like CrowdStrike.
The result on the CRWD stock
Few companies are worth 36 times their turnover. The best IT security stocks are an exception, given their rapid growth and the premium placed on leadership.
The recent fall of Nasdaq composite approach to the correctional territory. It is down about 6% from its September 8 high. It’s hard to call market lows, but we seem to be getting close.
If you are looking for capital gains, this might be a good time to buy CrowdStrike. If you are of sporting blood, you might be better off watching SentinelOne. Cyber warfare shows no signs of slowing down and it helps to own an arms dealer in times of war.
At the time of publication, Dana Blankenhorn does not hold any positions with the companies mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.
Dana blankenhorn has been a financial and technology journalist since 1978. He is the author of Living with Moore’s Law: Past, Present and Future available in the Amazon Kindle store. Write to him at [email protected] or tweet it on @danablankenhorn. He writes a Substack newsletter, Facing the future, which covers technology, markets and politics.