The cybersecurity stock has been in recovery mode of late, but can it sustain its momentum for the next year?
Shares of CrowdStrike Holdings (CRWD -0.59%) have delivered healthy gains of 56% in the past year. But a closer look at the recent stock price action makes it clear that the high-flying cybersecurity company’s rally has come to a screeching halt, thanks to a faulty software update that knocked down many global IT systems on July 19.
More specifically, CrowdStrike stock is down 34% from the 52-week highs it hit in early July. However, the cybersecurity specialist has witnessed a recovery recently. Its fiscal 2025 second-quarter results (for the three months ended July 31) seem to have eased investors’ concerns about the fallout of the outage.
Does this mean investors should consider buying CrowdStrike stock now following its recent pullback, in anticipation of more gains in the coming year? Let’s find out.
Wall Street seems to be bullish about CrowdStrike stock
Out of 51 analysts covering CrowdStrike stock, 82% rate it as a buy, while only 2% rate it as a sell. It’s also worth noting that the stock has a 12-month median price target of $315, which points toward a 21% jump in its shares from current levels. The Street-high price target of $540 suggests that CrowdStrike could jump an impressive 108% from current levels.
The bullish analyst outlook despite the global IT outage a couple of months ago — which reportedly led to a massive loss of $5.4 billion at Fortune 500 companies, according to cloud monitoring and insurance services provider Parametrix — stems from the company’s modest guidance cut. CrowdStrike has reduced its fiscal 2025 revenue guidance to a range of $3.89 billion to $3.9 billion, down from the earlier range of $3.98 billion to $4.01 billion. That translates into a reduction of 2.5% at the midpoint.
The updated guidance means that CrowdStrike’s top line is on track to grow 27.5% in the current fiscal year. Management pointed out on the latest earnings conference call that the compensation packages to make up for the outage would affect its subscription revenue by $60 million this fiscal year, while its professional services revenue could be affected in the “high single-digit million dollars in the back half of FY ’25.”
CrowdStrike’s compensation packages include giving customers access to additional cybersecurity modules, flexible payment terms, and extending the duration of customers’ subscription contracts. These packages are going to have a negative effect on the company’s profitability. That explains why CrowdStrike has reduced its earnings per share guidance for fiscal 2025 to $3.63 per share, from the earlier figure of $3.98 per share.
CrowdStrike says that its operating margins will start improving in the second half of fiscal 2026 following the outage’s near-term effect on its business. At the same time, management points out that its “customer agreements contain provisions limiting our liability, and we maintain insurance policies intended to mitigate the potential impact of certain claims and have a strong cash position.”
The updated earnings guidance means that CrowdStrike’s bottom line is forecasted to jump by 17% this fiscal year. It’s worth noting that the company’s consensus earnings expectations for the next couple of years have dropped as well. But the good part is that its bottom-line growth is forecasted to accelerate after a couple of fiscal years.
CRWD EPS Estimates for Current Fiscal Year data by YCharts.
Can investors expect the stock to sustain its recent momentum and head higher?
Though Wall Street’s price targets indicate that CrowdStrike could indeed head higher in the coming year, it won’t be surprising to see the stock remain under pressure in the near term as the company recovers from the aftereffects of the July 19 outage. However, any further pullbacks in CrowdStrike stock could open up a buying opportunity for investors because of its robust revenue pipeline and huge end-market opportunity.
CrowdStrike estimates that its total addressable market (TAM) in 2024 could hit $100 billion before growing to $225 billion in 2028. The company has been doing well to capitalize on this lucrative opportunity so far, which is evident from the 50% year-over-year increase in its remaining performance obligations (RPO) last quarter to $4.9 billion. RPO refers to the total value of a company’s future contracts that are yet to be fulfilled.
So, the healthy year-over-year growth in the RPO points toward a bright future for the company, suggesting that it could sustain its healthy revenue growth levels in the long run. Also, if the company’s results and guidance turn out to be better than expected in the coming quarters, it may be able to win back investor confidence, and could even deliver the steady gains that analysts are expecting from it over the next year.
That’s why savvy investors can consider accumulating this cybersecurity stock, in case it corrects further in the near term and becomes available at a more attractive valuation. Its prospects over the next year and for the long run seem bright.
Harsh Chauhan 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.