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Did Investors Miss the Boat on CrowdStrike Stock?

Motley Fool - Sun Mar 10, 5:15AM CDT

The end of CrowdStrike's (NASDAQ: CRWD) fiscal 2024 (ended Jan. 31) has firmly positioned the company for the next fiscal year. This shows that the trend to consolidate all cybersecurity needs under one vendor likely benefits the company.

However, the stock has risen more than 160% over the last year. Does that mean investors have missed out on CrowdStrike, or do they have time to buy into its growth story?

CrowdStrike and the "one vendor" trend

In the past, IT departments tended to buy cybersecurity products from different vendors based on specialties. For example, CrowdStrike is strong on endpoint security, while Zscaler leads the way in zero-trust security, so customers often choose to deal with different vendors based on such strengths.

Another competitor, Palo Alto Networks, stood out by marketing itself as more of a cybersecurity generalist. Nonetheless, most online security companies take a generalized approach, even ones associated with specific specialties. This is true for CrowdStrike, which has long prided itself on the fact that most of its customers subscribe to several cybersecurity modules.

In an effort to foster seamless integration between different platforms, Palo Alto offered free modules to attract product switchers. However, this led most cybersecurity stocks to pull back recently as the competition stoked fears about falling revenue.

Now, CrowdStrike has shown the market that it can sell multiple security modules to one client without such an approach, helping to take its stock to record highs.

CrowdStrike by the numbers

Consequently, CrowdStrike's revenue in fiscal 2024 was just under $3.1 billion, a 36% increase from fiscal 2023. The company reported that of its approximately 29,000 subscription customers, 64% subscribe to five or more modules, indicating that more customers embrace integration with CrowdStrike.

CrowdStrike's retention numbers confirm this trend. Gross retention is 98%, meaning it loses very few customers. Also, dollar-based net retention is 119%, indicating that the average long-term customer spent 19% more on the platform compared with the previous year.

Additionally, CrowdStrike kept its operating expenses rising at a slower pace, reducing operating losses to just $2 million. From there, interest income of $149 million led to a net income of $89 million for fiscal 2024, an improvement from the $183 million loss in the previous fiscal year.

Still, the aforementioned rise in the stock price has made CrowdStrike stock expensive by just about any measure. Indeed, investors might cut the company some slack on the recent 85 forward P/E ratio, considering the recent turn to profitability.

Nonetheless, the price-to-sales (P/S) ratio of 28 makes CrowdStrike an undeniably pricey stock. Even with its considerable growth and success in persuading clients to stay with CrowdStrike and subscribe to more modules, some bulls might hesitate to buy the stock for that reason.

Should I consider CrowdStrike stock?

Investors are likely not too late with CrowdStrike stock, but at current levels, they should add positions slowly. Admittedly, valuation is unlikely to matter in the long run, and considering its marketing position and growth rates, investors who buy now should still win with CrowdStrike stock in the long term.

However, buying a stock at a multiyear peak can mean years of losses, and taking positions close to a near-term low can significantly improve returns. Since timing markets is extremely difficult under the best of circumstances, a cautious approach may ultimately be an investor's wisest course of action.

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Will Healy has positions in CrowdStrike and Zscaler. The Motley Fool has positions in and recommends CrowdStrike, Palo Alto Networks, and Zscaler. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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