About CrowdStrike

You know how a lot of people claim to be visionaries and that they have an innate ability to accurately predict the state of the world in the next few years?

We don’t claim to have that ability.

There is no (legal) crystal ball and there is no such thing as perfectly predicting the future.

Nevertheless, we have no problem admitting that we see some trends sticking around and think it might be worth investing according to these views.

Enter cybersecurity.

We’ve dipped our beak into one cybersecurity company in the past (Palo Alto Networks), however given the current state of global affairs and the exponentially growing threats stemming from bad actors on the internet and by those that use malware or other types of software to harm others, it is safe to say that there has been and will continue to be a proportionate amount of demand for companies such as Palo Alto Networks and the company in question today, CrowdStrike and their effective and proven systems that aim to prevent bad actors from preying on others on the internet. 

CrowdStrike, headquartered in Sunnyvale, California, is a cybersecurity-focused, software as a service (SaaS) technology company focused on providing customers four main things: cloud workload protection capability, endpoint security, threat intelligence and cyber attack response services. 

One of the company’s premier products related to its cloud workload protection service goes by the name of Falcon. Aside from having a cool name, Falcon is a platform that essentially hunts for potential threats that can negatively impact a company’s cloud and cloud environment. 

From our understanding, CrowdStrike stops the bad guys (cybercriminals) before they get to you.

This is just one of the many vital products (and services) this company offers its clients. 

Speaking of clients, CrowdStrike has a few notable ones.

For instance, the company has helped the United States Department of Justice (DOJ) in recent years in fending off threats from military hackers abroad and has also tended to the needs of its corporate customers such as Goldman Sachs, Cushman & Wakefield, Credit Suisse and even school districts and universities around the country, along with many other high profile customers.  

With nearly 18% market share of the endpoint cybersecurity sector, CrowdStrike is clearly a force to be reckoned with.

Now, let’s get a little closer to our expertise and figure out whether or not this cybersecurity company’s stock is worth buying.

CrowdStrike’s stock financials 

After recently reporting lackluster (at least, from Wall Street’s point of view) earnings, CrowdStrike stock is trading at a relative discount, standing at around $135 in previous weeks and now trading at around $110.

Let’s dig deeper and try to gauge whether this recent drop in share price constitutes itself as a buying opportunity or just an opportunity to cut your hand while trying to catch a falling knife.

With a prevailing market capitalization of $25.74 billion, the company’s stock doesn’t currently display or have a price-to-earnings (P/E) ratio readily available, implying that the company is reinvesting its earnings back into its business, and thus is also one of the primary reasons the company doesn’t currently shell out an annual dividend to its shareholders.

As a younger sleek cybersecurity and software company, we’re completely fine with all of this.

It is far from uncommon for technology-focused companies to reinvest, reinvest again and then reinvest some more as it’s one of the main ways in which they can stay competitive, let alone ahead of the strong opponents it brushes up against.

Shifting gears over to the company’s balance sheet, CrowdStrike’s executive team is responsible for around $3.6 billion in total assets as well as approximately $2.6 billion in total liabilities.

Holding the silver cylinder is one of the founding partners of CrowdStrike, George Kurtz

Investing and staying abreast (and ahead of the competition in certain regards) demands a lot of resources and with that, costs a lot.

This is probably why the company’s total liabilities appear to be rather high when pinned against its total assets.

Although given the aforementioned reasoning in previous paragraphs (being a leader in the cybersecurity and software spaces is expensive given the amount of investment required to stay in the game), we do hope that the company’s executive team can prove over the next ten years that it can responsibly acquire, manage and utilize debt in order to further grow its business and not become over leveraged to the point of no return.

CrowdStrike has a solid, proven track record thus far but time will ultimately tell whether or not the company can handle its debt and other liabilities responsibly, while also growing its business. 

However, as of right now, we’re not overly concerned as CrowdStrike’s total assets are greater than its total liabilities.

Over to the company’s income statement, CrowdStrike’s total revenue has been growing like a weed. 

At $119 million in 2018, the company’s total revenue has grown exponentially over the years that followed, standing at $250 million in 2019, subsequently jumping to $481 million in 2020, $874 million in 2021 and to its latest reported figure of $1.4 billion in 2022 (January 31st).

This is exceptional growth and proof from the market (which is the best and most important indicator) that it values CrowdStrike’s product and service offerings and also speaks to the company being recession resistant or dare we even take it up a notch and say the company is recession proof in many regards.

Of course, no company is completely immune to the multitude of macroeconomic headwinds that have plagued companies in recent years (and even months and weeks for that matter), however it is our fundamental opinion that the future is in cybersecurity as more and more threats arise, companies such as CrowdStrike are going to stand to benefit from this trend.

We see turmoil as a tailwind for CrowdStrike.

As it relates to the company’s cash flow statement, it is evident that this company is investing and burning through some cash in the process. Specifically, each of the last five years CrowdStrike reported negative net income values ranging from -$93 million (2021) all the way up to -$232 million (2022). While, at least, from our vantage point, this sort of cash burning is normal for technology companies, especially in the cybersecurity sector, some unwanted gasoline may be added to the cash fire as headwinds such as a strong US dollar (a currency headwind, particularly for exporters in the United States) and many other external variables that hinder its ability to become cash flow positive in the foreseeable future. 

Nevertheless, we think in a few years it won’t be too far-fetched for CrowdStrike to attain positive net income, especially as the state of the global economy improves, as well as demand for the company’s offerings.

CrowdStrike’s stock fundamentals

On a trailing twelve month (TTM) basis, we were happily surprised to find that CrowdStrike is a lot closer to achieving a net profit margin greater than that of the industry’s average than we initially expected. For instance, the company’s TTM net profit margin currently sits at -8.6% to the industry’s average of 15.71%. Keep in mind, the seasoned leaders in this space have a major advantage on this front but this metric should in no way be construed as indicating that CrowdStrike isn’t a major emerging leader in the sector.

It is.

It’s just that the company, as mentioned in previous paragraphs, is in a high growth phase and likely not laser focused on profitability but more so acquiring and retaining clients that can afford its services during times of economic downturn.

Profits will (probably) come later for CrowdStrike on a TTM basis, especially as it continues to specialize in endpoint security and find other niches it can dominate that haven’t yet been secured by its formidable foes.

Should you buy CrowdStrike stock?

We are very bullish on the cybersecurity sector if you haven’t noticed.

As hackers and other bad actors continue to find ways to strike others, CrowdStrike and other similar companies will be needed, for the largest of companies from the Fortune 500 and the smallest of local businesses. CrowdStrike has handled and currently solves complex problems in an uncertain and equally complex world.

After its recent share price decline and the overall bearish sentiment in the market, we think it is overblown and as this company continues to acquire market share and expand its essential offerings, we think the future is very bright for CrowdStrike and those it serves.

Although investors might want to consider picking up shares in the company’s stock after the recession deepens so as to get in at a relative discount, we currently give CrowdStrike’s stock a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.