Why CrowdStrike Stock Is a Smart November Buy

Published Date : 30/10/2024 

Despite the July 19 outage, CrowdStrike remains a leading cybersecurity firm with strong growth potential. Here’s why investors should consider it a smart buy in November. 

Why CrowdStrike Stock Is a Smart Buy in November

November could be the ideal long-term entry point for investors in this cybersecurity juggernaut. Cybersecurity giant CrowdStrike (CRWD) is set to release the results for its fiscal 2025 third quarter (ending Oct. 31) in late November. The report will give investors a fresh look at how the company is navigating its disastrous July 19 outage, which knocked 8.5 million computers offline worldwide and cost some of its top clients a combined $5 billion.

CrowdStrike stock plunged 44% after the outage, but it has already regained half of that loss because the fallout hasn't been as bad as analysts anticipated. Here's why the company's quarterly results could accelerate the recovery, making the stock a great potential buy in November.

CrowdStrike Continues to Be a Leader in the Cybersecurity Industry

During his conference call with investors for the fiscal 2025 second quarter (ended July 31), CrowdStrike CEO George Kurtz said the outage caused many potential new customers to delay signing contracts. However, he stated that the majority of those deals remain in the sales pipeline, suggesting that businesses simply wanted to see how the company would handle the crisis.

There aren't many good alternatives to what CrowdStrike offers its business customers. The cybersecurity industry has a history of fragmentation, with vendors typically specializing in specific products, leaving businesses to piece together their software stack from multiple providers. CrowdStrike, on the other hand, offers a holistic cybersecurity platform, protecting all aspects of the enterprise, from cloud networks to employee identities to endpoints.

CrowdStrike's flagship Falcon platform offers 28 modules in total. During Q2, the company reported that 65% of its customers were using at least five of them. Plus, the number of deals signed for eight or more modules increased by 66% compared to the year-ago period.

The Power of Artificial Intelligence (AI)

CrowdStrike's holistic approach to cyber protection is driven by artificial intelligence (AI), which automates everything from threat detection to incident response. The company's AI models are trained on more than 2 trillion incidents every day, becoming more advanced and accurate over time.

Last year, CrowdStrike launched a virtual assistant for Falcon called Charlotte AI. This tool saves customers an average of two hours per day by using a chatbot interface to quickly retrieve answers to customer queries, 75% faster than manual methods. Charlotte AI is also capable of autonomously generating incident reports, reducing the amount of manual investigative work required by employees.

The Outage Hasn't Affected Long-Term Revenue Forecast

The outage had a minimal impact on CrowdStrike's Q2 results because it occurred just before the end of the period. The company generated $963.9 million in revenue in Q2, which topped management's forecast of $961.2 million.

The company has not made significant changes to its forecast for the fiscal 2025 year (ending Jan. 31, 2025). Management now expects to generate $3.9 billion in total revenue, a 2.5% reduction from the previous forecast of $4 billion. This indicates that CEO Kurtz expects the majority of the delayed deals in the sales pipeline to close. Investors should keep a close eye on further changes to the company's outlook when the Q3 report is released.

Long-Term Growth Potential

CrowdStrike has reiterated its long-term goal to achieve $10 billion in annual recurring revenue (ARR) by fiscal 2031. Given that the company had $3.86 billion in ARR at the end of Q2, this would represent a 159% increase over the next six years.

Stock Valuation and Investment Opportunity

CrowdStrike is only recently profitable, reporting its first net income in fiscal 2024. Valuing the company using the traditional price-to-earnings (P/E) ratio is challenging, so the price-to-sales (P/S) ratio is a better measure. CrowdStrike trades at a P/S ratio of 21.2, down from its peak of almost 30 before the outage, but still higher than its biggest competitor, Palo Alto Networks.

However, CrowdStrike deserves a premium valuation relative to Palo Alto because it is growing significantly faster. Its revenue increased by 32% in Q2, compared to an increase of 12% for Palo Alto. As long as there is no further fallout from the July 19 incident, the valuation gap between the two companies is justified.

The potential long-term opportunity for investors is exciting. If CrowdStrike achieves its annual revenue goal of $10 billion by fiscal 2031, the stock could deliver a 190% return, translating to a compound annual return of 19.4% over the next six years. This is almost double the average annual return of the S&P 500 since 1957.

Since the stock is still down 23% from its all-time high, a positive Q3 earnings report could encourage investors to see that the worst is over. This makes buying CrowdStrike stock in November ahead of the company's results an ideal entry point for the long term.

About CrowdStrike

CrowdStrike Holdings, Inc. is a leader in cloud-delivered endpoint protection. Its Falcon platform offers a single lightweight agent that protects endpoints across the enterprise, using AI and machine learning to detect and respond to threats in real time. Founded in 2011, CrowdStrike has headquarters in Sunnyvale, California. 

Frequently Asked Questions (FAQS):

Q: What caused the CrowdStrike outage on July 19?

A: The CrowdStrike outage on July 19 was caused by a technical failure that affected its cloud services, resulting in 8.5 million computers being knocked offline worldwide and costing some of its top clients a combined $5 billion.

Q: How has CrowdStrike's stock performed since the outage?

A: CrowdStrike's stock plunged 44% immediately after the outage but has since recovered half of that loss as the fallout was less severe than initially anticipated.

Q: What is CrowdStrike's long-term revenue goal?

A: CrowdStrike aims to achieve $10 billion in annual recurring revenue (ARR) by fiscal 2031, representing a 159% increase over the next six years.

Q: How does CrowdStrike's growth compare to its competitors?

A: CrowdStrike is growing significantly faster than its competitors. In Q2, its revenue increased by 32%, compared to a 12% increase for its biggest competitor, Palo Alto Networks.

Q: Why is November a good time to buy CrowdStrike stock?

A: November is a good time to buy CrowdStrike stock because the company is set to release its Q3 earnings report, which could show that the worst of the July 19 outage is over, potentially encouraging further stock recovery. 

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