Why Financial Pros LOVE CrowdStrike

A 5-year average revenue growth of 75%…

…surely the company doesn’t generate a profit.

That’s true, at least on paper.

But financial pros keep pounding the table on CrowdStrike (CRWD), searching for this stock at a rate nearly twice that of its closest competitors.

At first glance, this company might look expensive.

However, we see a lot of reasons why this high-growth digital security business has all the trappings of a potential 10-bagger.

CrowdStrike’s Business

Austin-based CrowdStrike is a powerhouse redefining the security landscape with a pioneering approach that’s as innovative as it is effective. 

Its unique prowess lies in its advanced cloud-native platform, providing robust protection for endpoints, cloud workloads, identities, and data.

The company offers a comprehensive suite of cybersecurity services anchored by its flagship product, the Falcon platform. 

This AI-driven software provides a multi-layer defense against known and unknown threats, serving a diverse clientele ranging from small businesses to Fortune 100 companies. 

Adding a feather to their cap, CrowdStrike also boasts the Charlotte AI, an advanced artificial intelligence system designed to predict and prevent cyber attacks before they happen.

Source: CrowdStrike Sept. 2023 Investor Relations

CrowdStrike segments its business into the following areas:

• Subscription (89% of total revenues) – Includes recurring revenues from customers subscribing to the Falcon platform and other related services.
• Professional Services (11% of total revenues) – Encompasses all revenues generated from providing personalized cybersecurity solutions and consulting services to clients.

CrowdStrike is particularly effective at expanding with its current customers, over half of which have 5+ cloud module subscriptions.

Source: CrowdStrike Sept. 2023 Investor Relations

Recently, CrowdStrike acquired cyber startup Bionic, sealing the deal at $350 million. 

Bionic adds real-time, frictionless application visibility, application-level vulnerability prioritization, and complete visibility for serverless infrastructures. Crowstrike hopes this will expand its customer base and penetrate existing clients even further.

Financials

Source: Stock Analysis

CrowdStrike’s stellar revenue growth still has plenty of runway.

Management believes it can more than triple recurring revenues within the next 5-7 years.

Source: CrowdStrike Sept. 2023 Investor Relations

Considering the company has 23,000 customers compared to the +500,000 for VMWare (VMW) and Fortinet (FTNT), it certainly has the market share to take.

Additionally, margins continue to expand alongside the company’s revenues.

Management likes to refer to the non-GAAP operating income as its measure of profitability:

Source: CrowdStrike Sept. 2023 Investor Relations

The difference is mainly stock-based compensation, which wanes over time.

That explains why operating cash flow is outstanding and growing – more than double what it was in 2022.

And like many tech companies, CrowdStrike holds negligible amounts of debt.

Valuation

Source: Seeking Alpha

Everything we’ve written about CrowdStrike to this point helps explain the hefty price-to-earnings valuation.

However, at 42.2x operating cash flow, it’s smack in the middle of the group, with big players like FTNT trading at half the price-to-cash flow and Okta (OKTA) trading at 53.0x operating cash flow.

And considering CrowdStrike’s revenue growth, that’s not too shabby.

Interestingly, CrowdStrike trades at the highest price-to-sales ratio of the group. But we can explain that by looking at the next section.

Growth

Source: Seeking Alpha

CrowdStrike’s revenue growth this year is a touch lower than ZScaler’s (ZS), coming in at 44.1%

But looking forward, it’s the top of the class. 

And when you expand to look back over a 5-year period, the 80% annual average growth is flat-out phenomenal.

That’s precisely why big money is so hot on this stock.

Profitability

Source: Seeking Alpha

CrowdStrike’s margins aren’t its selling point…until you look at its levered free-cash-flow. 

Again, it’s the top of the group, which says a lot about a company that’s a fraction of the size of its peers.

Our Opinion 9/10

CrowdStrike is doing everything right.

Management keeps plowing money back into the business. Customers buy more and more.

And let’s not forget the massive runway between taking market share and the general growth needs in the sector.

Although the stock is volatile, we can use that to our advantage.

We like this company and picking up shares starting around $165.