Should You Dump CrowdStrike (CRWD)?

On July 19th, 2024, a huge chunk of the world economy ground to a halt due to a faulty upgrade from CrowdStrike (CRWD).

Estimates put the costs of the global outage over $1 billion.

Almost immediately, shares of CrowdStrike sold off, with the stock tumbling almost 30% in a matter of days.

According to our TrackStar data, financial pros are trying to assess the damage to CrowdStrike’s stock.

We gave the stock a 7/10 rating back in June, highlighting the company’s excellent cash flow and substantial growth.

The latest search data suggests money managers are worried about both.

However, we believe that once the dust settles, there will be an opportunity to scoop up shares at a discount.

CrowdStrike’s Business

CrowdStrike’s Falcon platform brings all your cybersecurity needs under one roof.

Source: CRWD Q1 2025 Investor Presentation

This separates it from peers like Palo Alto Networks (PANW), which primarily focus on network security, including firewalls. 

You can think of it this way…

Palo Alto Networks provides a mix of hardware and software solutions for network and cloud security (which is more likely to be on-site), while CrowdStrike offers cloud-native endpoint protection and threat intelligence.

And most customers are happy with CrowdStrike.

The company counts more than 65% of the Fortune 100 and half of the Fortune 500 companies as its customers.

The latest outage came from a faulty update that crashed Microsoft Windows systems.

Everything from airlines to hospitals came to a screeching halt at once.

We don’t see this as a serious blow to the company.

Although the public image was tarnished, CrowdStrike wasn’t hacked. It just screwed up. 

And you can best believe it will add processes and procedures to prevent this from happening again.

Considering this hasn’t happened before to the company, we don’t expect it will happen again, provided they make the necessary changes.

Are they legally liable for costs? Not really.

Customers can certainly request, and we expect the company to offer refunds.

But that’s the extent of the liability.

Financials

Source: Stock Analysis

Let’s consider how the company’s financials could be affected by this outage.

CrowdStrike generates over $1 billion in free cash flow annually with a revenue growth rate of over 30%.

Even if they refunded everyone for half the year, it wouldn’t make a huge dent in the long-term profitability.

The company has less than $800 million in debt with over $3.7 billion in cash on hand.

We don’t see any loss in revenue or payouts materially impacting the company’s long-term prospects.

Valuation

Source: Seeking Alpha

So, what kind of discount are we getting on the stock now that it’s dropped?

The best metric for this is price-to-cash-flow, which sits at 51.4x. That will probably get worse before it gets better.

And you may be saying to yourself, that’s higher than all the rest.

However, it’s down from 73.0x when we looked at it last month. Plus, the forward price-to-cash-flow ratio is 41.7x, though we expect that to deteriorate some from the fallout.

Growth

Source: Seeking Alpha

Here’s the thing…only ZScaler (ZS) comes close to CrowdStrike’s revenue growth numbers. And though the two operate as cloud security platforms, their purposes are quite different.

What’s impressive about both companies here is the proportional growth of free cash flow alongside revenue.

Profitability

Source: Seeking Alpha

The P&L margins don’t look all that great for CrowdStrike or ZScaler. But the free cash flow is on par with its other peers, which is common for high-growth tech companies.

As these young companies mature, we expect their margins to improve.

Our Opinion 7/10

Why are we giving this company the same rating as before?

First, the long-term picture hasn’t changed. CrowdStrike makes an excellent product, generates cash, and continues to grow. Its latest problem wasn’t a hack but a preventable screw up that shouldn’t happen again.

Second, we simply don’t know how long the fallout will last.

Shares could remain under pressure for months, going even lower.

So, while the stock is a value here and now, it could easily fall further.

This is one where the dollar cost-averaging approach would be your best bet.

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