CrowdStrike Holdings, Inc. CRWD, a prominent figure in cybersecurity, has long been a beacon of success in the ever-evolving tech landscape. The company’s recent unveiling of its second-quarter fiscal 2025 earnings on August 28, 2024, however, has stirred unease among investors. Analysts have mitigated CrowdStrike’s earnings per share (EPS) estimates, and the company’s roadmap for the remaining fiscal journey paints a more arduous path. The burning question arises – Is it time for investors to part ways with CRWD stock?
CrowdStrike’s Sales Stagnation and Updated Projections
In its Q2 fiscal 2025 report, CrowdStrike showcased robust growth, with revenue swelling by 32% year-on-year to a sum of $963.9 million, alongside a 33% surge in subscription revenues. The annual recurring revenue (ARR) soared to $3.86 billion, marking a solid 32% ascent from the previous year. At first glance, these figures may dazzle, but they cloak a stark reality of deceleration in the company’s growth momentum.
Preceding fiscal year 2023, CrowdStrike consistently outshined, boasting over 50% annual revenue expansion, securing its status as a high-flying tech entity. However, the growth trajectory began dwindling post fiscal 2024, plummeting to the low-30s percentage bracket in the most recent quarter.
Further darkening the horizon was the July 19 IT outage impacting multiple devices hinged on Microsoft Corporation’s MSFT Windows operating system worldwide. This crisis, as per CrowdStrike’s chief financial officer, Burt Podbere, diverted resources and deferred deals exceeding $60 million, with many still hanging in the balance.
This debacle, coupled with challenges like extended sales cycles, steered CrowdStrike towards revising its revenue and EPS forecast for fiscal 2025. The management now envisions total revenues ranging from $3.89 billion to $3.90 billion, reflecting a 27% to 28% year-on-year growth margin. The non-GAAP net income per share is set to hover between $3.61 and $3.65, both metrics trailing previous expectations.
Consequently, these revised projections, intertwined with management’s cautious commentary on customer spending and elongated deal cycles, nudged analysts to downwardly adjust their EPS prognostications. Analyst sentiment veering southward often serves as an ominous signal for looming underperformance.
CRWD’s Lavish Valuation: Too Pricy Amidst Slowing Momentum
CrowdStrike shares cascaded post the July 19 turmoil, with the updated fiscal 2025 guidance intensifying investor qualms. CRWD stock has tumbled by 24.4% since July 19, trailing behind the Zacks Internet – Software industry’s rally of 3.5%. Moreover, it has lagged its elite counterparts, Palo Alto Networks, Inc. PANW and Fortinet, Inc. FTNT, which witnessed meteoric hikes of 32.2% and 6.9%, respectively, during the same tides.
Performance Metrics Post-July 19
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Even post recent price descents, CrowdStrike is perched at a forward 12-month price-to-earnings (P/E) ratio of 59.37X, towering over the industry’s average of 31.93X. Equally astronomic is the forward 12-month price-to-sales (P/S) ratio, with CRWD trading at a multiple of 14.08X, well above the industry’s 2.51X metric.
Hyper-growth stocks such as CrowdStrike are commonly valued based on their future prospects, translating to inflated stock prices relative to current earnings and sales. While this valuation calculus holds under the sun of robust growth, as in the case of CrowdStrike, any hint of a slowdown necessitates a recalibration of the premium warranted. Given the company’s swaying stance on the road ahead, the sustainability of this premium valuation remains questionable.
On the cybersecurity battleground, peers like Palo Alto Networks and Fortinet are parading more attractive valuations and coherent growth trajectories. PANW and FTNT are presently pegged at forward 12-month P/S multiples of 12.02X and 9.17X, respectively. In the realm of forward 12-month P/E ratios, Palo Alto Networks lingers at a 54.30X multiple, while Fortinet stands at 36.07X.
Adding to the labyrinth of questions, CRWD shares have broached beneath their 50-day and 200-day moving averages – cardinal technical thresholds often signaling a bleak trajectory.
Analyzing Bearish Movement through Moving Averages
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Endgame: Shedding CRWD Stock
While CrowdStrike unarguably reins over the cybersecurity realm, the amalgamation of stifled growth, revised outlook, and bearish technical indicators portend deeper shadows for its stock in the foreseeable horizon. The lofty valuation, paired with the downgraded EPS estimates, raises a red flag on its current worth.
For risk-averse investors or those seeking steadier growth pastures, relinquishing CRWD stock now stands as a prudent move. While the long-term cybersecurity prospects hold fort, the immediate headwinds bearing down on this Zacks Rank #4 (Sell) constituent loom too large to disregard.