The digital world is becoming an increasingly essential and complex part of our lives. It is therefore becoming more and more important to have resilient and flexible cybersecurity systems, both personally and in business. There are a number of companies in the space innovating at a rapid pace.
One of them is CrowdStrike (NASDAQ:CRWD) – but with its share price up 55% in 2023, is there still more growth ahead?
What does CrowdStrike do?
CrowdStrike is a cloud-based cybersecurity company that provides endpoint protection, threat intelligence, and incident response services. The company was founded in 2011 and went public in 2019. It has a strong track record of revenue growth, with earnings growing 39% in 2022. However, like many in the sector, the company is unprofitable. Losses in the last five years increased at an average rate of 8.4%.
What about the fundamentals?
CrowdStrike’s stock price has been on a tear in recent years. It rose from around $50 per share in 2020 to over $160 in 2023. The stock is currently trading at a price-to-sales (P/S) ratio of 17 times, fairly high when compared to the sector average of 10 times. By considering the discounted cash flow, fair value of the stock at $142.99 is 12% above the current share price of $160.13. However, many justify the high valuation by the company’s strong growth prospects.
Future estimates
Analysts expect CrowdStrike’s revenue to grow by 40% in 2023. Earnings per share are expected to grow by 41% in 2023. These impressive estimates demonstrate potential to solidify its leadership position in the cloud-based cybersecurity market.
CrowdStrike is a well-positioned company with strong growth prospects. However, the stock could be highly susceptible to a decline if the company misses these high growth expectations.
Why would I invest?
- Strong growth prospects: CrowdStrike is a leader in the cloud-based cybersecurity market, which is expected to grow at a rapid pace in the coming years. It has a strong customer base and a proven track record of innovation.
- Soon to be profitable: The company is close to being profitable. Sustained profitability would give it the financial resources to invest in further research and development.
- Strong management team: The company’s CEO, George Kurtz, is a former McAfee executive with over 20 years of experience in the cybersecurity industry.
What might be an issue?
- High valuation: CrowdStrike is a high-growth company with a high valuation. This means that the stock is expensive and could be susceptible to a decline in price if growth slows.
- Competition: It faces competition from other cloud-based cybersecurity companies, such as Palo Alto Networks and Zscaler. These companies are also growing rapidly and could take market share away from CrowdStrike.
- Cybersecurity risks: The cybersecurity industry is inherently risky. Cybercriminals are constantly developing new ways to attack businesses. CrowdStrike is a leader in the industry, but it is not immune to these risks.
Am I buying?
The CrowdStrike share price has performed extremely well in 2023, with investors clearly seeing an increasingly digitised world with an enormous potential customer base. I see a company doing all the right things, but with such a high valuation, I cannot be buying at these levels.
