Shares of CrowdStrike (NASDAQ: CRWD) rose after the cybersecurity company reported strong first-quarter earnings. The stock has now more than doubled in the past year and is up about 900% over the past five years.
Let’s take a closer look at the company’s most recent results and see if it’s too late to buy the stock.
The strong sales growth continues
For the first quarter, CrowdStrike saw its revenue grow 33% to $921 million. That was well above the previous forecast of revenue between $902.2 million and $905.8 million. Subscription revenue rose 34% to $872.2 million.
Annual recurring revenue (ARR), the annualized value of customer subscription contracts, increased 33% to $3.65 billion. Net new ARR rose 22% to $211.7 million in the quarter.
The company’s adjusted earnings per share (EPS) rose to $0.93 from $0.57 a year ago. Previously, the company had expected adjusted earnings per share between $0.89 and $0.90.
Operating cash flow was $383.2 million, while free cash flow was $322.5 million. The company ended the quarter with nearly $3 billion in net cash and short-term investments.
The company continues to make deals that include more of its cybersecurity modules. More than 65% of CrowdStrike customers have five or more modules, while 28% have seven or more. The number of deals with eight or more modules meanwhile increased by 95%. The company said the number of deals that include Cloud, Identity or Falcon next-generation SIEM modules has more than doubled year over year.
CrowdStrike was very bullish on its Falcon and Falcon Flex programs, which it said have strong win rates and drive larger platform deal sizes. Falcon is an artificial intelligence (AI)-based platform console that allows its 28 modules to work together seamlessly. The Flex program offers a flexible licensing agreement that allows pre-negotiated commitments to be locked in over time, and companies can even switch modules as their needs change.
Looking ahead, CrowdStrike expects second-quarter revenue to be between $958.3 million and $961.2 million, with adjusted earnings per share between $0.98 and $0.99. For the full fiscal year, the company expects revenue of between $3.98 billion and $4.01 billion and earnings per share of between $3.93 and $4.03. That’s up from previous guidance that called for revenue between $3.92 billion and $3.99 billion and adjusted earnings per share between $3.77 and $3.97.
Overall, this was a great quarterly report from CrowdStrike that really set the company apart from its cybersecurity peers. said during the earnings conference call Wells Fargo analyst Andrew Nowinski immediately pitted the company’s quarter against its rivals, pointing out that “each of… [its] Industry peers have delivered quite mediocre results this quarter.”
Is it too late to buy the shares?
CrowdStrike has proven to be best-in-class in the world of cybersecurity, and it’s not surprising that it’s trading at a premium valuation as a result.
The stock trades at a price-to-sales (P/S) multiple of almost 21 times and is by far one of the most expensive cybersecurity stocks out there.
Now the stock is trading at a lower valuation than in the past, but growth has also slowed. Revenue growth has increased from over 125% in 2018, to approximately 81% in 2021 and to 54% in 2023, to a range of low to mid 30% currently. With slower revenue growth should come a lower multiple.
While CrowdStrike has proven to be one of the best cybersecurity companies, valuation does matter. That’s why I prefer to wait on the sidelines and at these valuation levels I would only be a buyer if the price falls.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends CrowdStrike, Fortinet, Okta, Palo Alto Networks, and Zscaler. The Motley Fool has a disclosure policy.
CrowdStrike shares are rising as revenue rises. Is it too late to buy the shares? was originally published by The Motley Fool
