CrowdStrike(NASDAQ: CRWD) has developed a cybersecurity platform designed to protect every layer of a business, using artificial intelligence (AI) to automate everything from threat hunting to incident response.
The company started a series of incidents on July 19 when it released a corrupted software update to customers, causing millions of computers used by thousands of companies around the world to crash. The incident was resolved within about a day, but CrowdStrike shares quickly fell 44% as investors feared it would result in a customer exodus. The stock price has now almost fully recovered as the fallout from the event was not as bad as expected.
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The company has just raised its revenue guidance for the current fiscal year. That could be a sign that positive things will happen in 2025. So this is why investors might want to buy the stock as part of their New Year’s resolutions.
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The cybersecurity industry has a history of fragmentation, meaning companies typically build their security stack from different vendors. CrowdStrike’s Falcon platform is a true all-in-one solution, with 28 different modules for cloud security, identity protection, endpoint security and more.
Falcon offers both convenience and cost savings. Therefore, CrowdStrike’s July 19 outage — which disrupted 8.5 million computers worldwide and cost some of its top customers more than $5 billion — is unlikely to have a lasting impact on its business. Falcon simply delivers too much value.
During the third quarter of fiscal 2025 (ended October 31), an all-time high of 66% of customers used at least five Falcon modules. CrowdStrike management said this was the largest quarter ever for the sales force industry serving organizations with fewer than 2,500 employees.
The new Falcon Flex product, which launched in 2023, has been a big part of the company’s recent success. It offers companies flexible plans that allow them to distribute their spend across different Falcon modules at different times, depending on their needs. It means they can try new products as they come to market without having to negotiate a separate contract they’re locked into.
The average Flex customer has tried more than nine modules, so it’s a great way for CrowdStrike to entice existing customers to increase their spend over time.
Falcon aims to automate as many cybersecurity workloads as possible, so it can work silently in the background of a customer’s networks and endpoints. AI is the secret to achieving that goal. CrowdStrike’s AI models are trained on more than 2 trillion security events every day, so they continually become more accurate to provide the best protection.
CrowdStrike generated total revenue of $1 billion in the third quarter, up 29% from the same period a year ago. It was also the first time that quarterly sales exceeded a billion dollars.
When the company announced its financial results for the second quarter of fiscal 2025 (ending July 31), shortly after the July 19 incident, it lowered its full-year 2025 revenue guidance from $4 billion to $3.9 billion at the high end. of their respective range.
That wasn’t a major change given the scale of the outage, and CEO George Kurtz remained confident that most of the deals in the company’s sales pipeline would eventually close. It appears he was right, because when CrowdStrike announced its recent third-quarter results, it revised fiscal 2025 revenue back to $3.93 billion at the high end of the range.
That forecast is still lower than $4 billion, but it’s a sign that any problems resulting from the outage are likely to be short-lived. While CrowdStrike expects weaker free cash flow in the upcoming fourth quarter due to costs related to the outage, the company reiterated its long-term goal of reaching $10 billion in annual recurring revenue (ARR) by fiscal 2031.
That would be a 150% increase from the current ARR of $4 billion.
CrowdStrike shares are currently trading just 11% below their all-time high. It’s not cheap right now as its price-to-sales ratio (P/S) of 23.1 is a 40% premium to its closest rival’s P/S Palo Alto Networks(NASDAQ: PANW):
CRWD PS Ratio data according to YCharts.
That said, CrowdStrike’s 29% revenue growth in the third quarter was more than double Palo Alto’s 14% revenue growth in the recent quarter, so CrowdStrike deserves a premium valuation. And assuming the company achieves its goal of reaching $10 billion ARR by fiscal 2031, its stock will have a forward price-to-earnings ratio of just 8.7.
In theory, this means that CrowdStrike stock will have to rise 165% over the next six years to maintain its current price-to-earnings ratio of 23.1. That would be a big potential return for shareholders, but it could also be conservative.
That’s because management currently values ​​its addressable market at $116 billion and expects it to grow to $250 billion in the coming years. So a $10 billion ARR would still represent a fraction of the company’s opportunity.
Investors looking to add new stocks to their portfolio before the new year should definitely consider CrowdStrike. However, the best rewards will likely come for those who hold the shares well beyond 2025.
Consider the following before purchasing shares in CrowdStrike:
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Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds and recommends positions in CrowdStrike. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.
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