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Where Will CrowdStrike Stock Be in 1 Year?

In Business
June 08, 2024

CrowdStrike (NASDAQ: CRWD) posted its latest earnings report on Tuesday, June 4. For the first quarter of fiscal 2025, which ended on April 30, the cybersecurity company’s revenue rose 33% year over year to $921 million and exceeded analysts’ estimates by $16 million. Its adjusted earnings per share (EPS) grew 63% and cleared the consensus forecast by $0.04.

CrowdStrike followed up its earnings beat by lifting its full-year revenue and earnings outlook. Its stock rallied in response to that glowing report, but does it still have room to run after more than doubling over the past 12 months? Let’s review its growth trajectory and valuations to see where it might be headed in a year.

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Another quarter of stabilizing growth

CrowdStrike stands out in the crowded cybersecurity market because it only provides its endpoint security tools as cloud-based services instead of on-site appliances. That approach is cheaper, doesn’t require on-site maintenance, and is easier to scale as an organization expands. It also locks its clients into sticky cloud-based subscriptions.

CrowdStrike’s first mover’s advantage in the cloud-native space enabled it to disrupt many older cybersecurity companies. That’s why its revenue grew at a staggering compound annual growth rate (CAGR) of 65% from fiscal 2019 to fiscal 2024 (which ended in January 2024). But over the past year, its growth cooled off as the macro headwinds made it harder to gain new customers and cross-sell additional cloud-based modules.

Its revenue still increased 36% in fiscal 2024, but its growth in ending annual recurring revenue (ARR) decelerated as its net new ARR (the amount of ARR from new customers) declined in the first half of the year. Those two consecutive quarters of declining net new ARR spooked the bulls, but that closely watched metric accelerated again in the second half of the year. As a result, the company’s revenue growth broadly stabilized over the past two quarters.

Metric

Q1 2024

Q2 2024

Q3 2024

Q4 2024

Q1 2025

Ending ARR growth (YOY)

42%

37%

35%

34%

33%

Net new ARR growth (YOY)

(8%)

(10%)

13%

27%

22%

Revenue growth (YOY)

42%

37%

35%

33%

33%

Data source: CrowdStrike. YOY = Year-over-year.

CrowdStrike now expects its revenue to rise 30% to 31% for the full year, compared to its previous outlook for 28% to 31% growth. It attributed that robust growth to its market share gains, new government contracts, and the expansion of its platform with more generative AI features. At the end of the first quarter, 44% of its customers had adopted at least six of its modules, up from 43% in the fourth quarter and 40% in the prior-year quarter.

CrowdStrike continues to grow at a healthy clip while many of its peers — including Palo Alto Networks (NASDAQ: PANW) — still struggle to gain new customers in this challenging environment. During the first-quarter conference call, CrowdStrike CEO George Kurtz took a jab at Palo Alto Networks’ recent platformization strategy (which is currently driven by free trials and deferred revenue deals) — by saying that “when a platform delivers real value, you don’t have to give it away.”

Its margins are still expanding

In the first quarter, CrowdStrike’s adjusted subscription gross margin held steady year over year at 80%, its adjusted operating margin expanded five percentage points to 22%, and it stayed firmly profitable on a generally accepted accounting principles (GAAP) basis for the fifth consecutive quarter as it reined in its stock-based compensation expenses.

Those expanding margins indicate CrowdStrike still has plenty of pricing power and that economies of scale are kicking in as it gains more customers. It expects its free cash flow (FCF) margin to rise from 31% in fiscal 2024 to 31%-33% in fiscal 2025.

On the bottom line, it expects its adjusted EPS to increase 27% to 30% for the full year. That’s also higher than its previous outlook for 22% to 28% growth.

But can CrowdStrike maintain its premium valuation?

CrowdStrike’s growth rates are impressive, but its stock isn’t cheap. At $326 per share, it trades at 82 times the midpoint of its projected earnings for fiscal 2025. Its enterprise value of $71 billion is roughly 18 times this year’s estimated sales.

By comparison, Palo Alto Networks — which is growing slower but has a more broadly diversified ecosystem — trades at 46 times forward earnings and 12 times this year’s sales. In other words, CrowdStrike will need to keep hitting home runs over the next few quarters to drive its stock even higher in this volatile market.

Where will CrowdStrike’s stock be in a year?

CrowdStrike is clearly disrupting legacy cybersecurity companies with its cloud-native services, it’s squeezing more revenue from its customers, and its margins are rising. I don’t think its stock will double again over the next 12 months, but I believe it should gradually climb higher as it continues to beat Wall Street’s expectations. It should also have plenty of room to run over the long term as the cloud-native cybersecurity market expands.

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Leo Sun has positions in CrowdStrike and Palo Alto Networks. The Motley Fool has positions in and recommends CrowdStrike and Palo Alto Networks. The Motley Fool has a disclosure policy.

Where Will CrowdStrike Stock Be in 1 Year? was originally published by The Motley Fool

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