The company is getting harder and harder to overlook.
Shares of cybersecurity specialist CrowdStrike Holdings (CRWD -0.04%) jumped 22.2% in June, according to data provided by S&P Global Market Intelligence. The company kicked off the month by reporting strong quarterly earnngs, and shortly thereafter, it was announced that CrowdStrike would join the S&P 500.
CrowdStrike reported financial results for its fiscal 2025 first quarter on June 4. In short, business is better than expected for the cybersecurity company. Its Q1 revenue of $921 million was up 33% year over year, ahead of analysts’ expectations. Moreover, management modestly increased its full-year revenue guidance to $3.99 billion at the midpoint of the range.
The company offers multiple cybersecurity products through its single cloud-based platform. And customers have consistently adopted more of its products over time. As is the case with many software businesses, this results in high-margin revenue growth. CrowdStrike’s free-cash-flow growth has outpaced the top line in recent years too.
Data by YCharts.
CrowdStrike isn’t only profitable on a free-cash-flow basis. It had $89.3 million in net income in full-year fiscal 2024 and $42.8 million in the most recent quarter alone. And this profitability is a contributing factor to its inclusion in the S&P 500 index.
CrowdStrike officially joined the S&P 500 on June 24, further contributing to the stock’s strong momentum last month.
How this helps CrowdStrike
The S&P 500 is an index comprised of about 500 of the largest, most profitable U.S. companies. The decision-makers behind the index look at various factors to determine which companies make the cut, and one of them is profitability. That’s why CrowdStrike’s bottom-line improvements are a big deal.
The S&P 500 is arguably the most followed stock index in the world. Now one of its components, CrowdStrike has raised its profile among potential investors. Index funds also purchased shares of CrowdStrike in the days leading up to its inclusion.
What investors should watch now
As mentioned, CrowdStrike hopes to generate about $4 billion in full-year revenue. By comparison, management believes its total addressable market will be $225 billion by 2028, a strong sign of the company’s upside potential.
Spending on cybersecurity has become essential for businesses. Therefore, one would expect strong retention and growth for CrowdStrike. That’s why investors should watch the company’s customer count and how many products these customers are using on average. There’s no reason either of these metrics should weaken if the company is executing well, so any decline would be a red flag.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool has a disclosure policy.