CrowdStrike has delivered a solid earnings track record over time.
CrowdStrike (CRWD -1.11%) has roared higher in recent years as companies rushed to get in on its top cybersecurity platform Falcon. But the company has traveled along a bumpy road in recent times after a faulty software update in July led to the world’s biggest information technology outage ever. The event could cost Fortune 500 companies $5.4 billion, according to insurer Parametrix.
Though CrowdStrike launched a fix in just over an hour, experts estimate it may take months for some customers to fully recover. Still, in its latest earnings report, Crowdstrike said that customers, overall, have chosen to stick with the company, most previously arranged deals remain in the pipeline, and the company has even signed major new contracts.
On top of this, CrowdStrike is preparing for an event starting Sept. 16 that could lead to additional sales. Should you buy the stock before then?
Image source: Getty Images.
CrowdStrike’s Falcon system
First, here’s a bit of background on CrowdStrike’s business. The company offers a broad range of cybersecurity features in the form of modules — 28 of them — and these all connect to the single lightweight Falcon system. A customer can choose just a few modules or go all in for a complete package. Falcon is built in the cloud and uses artificial intelligence (AI) to collect data from an enterprise to scan for security threats.
Customers have flocked to CrowdStrike, helping the company’s key financial metrics to soar over the past five years.
CRWD Net Income (Annual) data by YCharts.
In the most recent quarter, annual recurring revenue increased 32% to more than $3.8 billion and GAAP net income increased by 5x, year over year. The company also reported record operating cash flow and record free cash flow. Importantly, CrowdStrike said that the July outage delayed the closing of new deals but most of those new deals remain in the pipeline and will close in the coming quarters.
Let’s consider what’s set to happen on Sept. 16. CrowdStrike is holding fal.con, its annual customer and industry conference, from Sept. 16 through Sept. 19. This year’s event includes the participation of more than 5,000 security executives and 95 sponsors. Here’s the most exciting point: CrowdStrike says fal.con is “our largest selling event of the year.”
A key moment for CrowdStrike
Considering the recent outage, this could be a particularly key moment for CrowdStrike this year. That’s because it will offer the company an opportunity to talk to potential clients face to face and explain what it’s doing now to prevent similar problems in the future — and to convince them that CrowdStrike still should be their top choice.
The company could be successful since it has been aggressive about tackling the issue. In the latest earnings report, CrowdStrike said it’s already implemented changes to improve content visibility and control, and launched an external-review process.
The event also will include an investor briefing on Sept. 18. CrowdStrike says “conversations with customers and partners” will be part of this.
Even if fal.con continues to be CrowdStrike’s biggest selling event this time around, results aren’t instantaneous. It takes months for deals to take form and finally close. And the fiscal fourth quarter generally is CrowdStrike’s best quarter when it comes to deals. The company now is in its fiscal third quarter.
A look at valuation
Now let’s get back to our question: Should you buy CrowdStrike stock before the start of fal.con?
I don’t expect the event itself to prompt a surge in CrowdStrike stock — as mentioned, deals and new revenue won’t flow in overnight. But I think CrowdStrike makes a great buy right now for a few reasons.
First, in its recent earnings report, the company showed its resiliency, and it’s clear the majority of its customers haven’t abandoned ship. Second, while the stock isn’t cheap, its valuation is much lower than it was a few months ago. Today, the stock trades for 71x forward earnings estimates, compared to more than 100x before the July outage.
Finally, the fal.con event will offer CrowdStrike an opportunity to further communicate with investors and customers. This should work to its advantage.
All of this puts CrowdStrike in the position to potentially achieve earnings growth over the long term, which makes it a great stock to buy and hold right now.
Adria Cimino 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.