While artificial intelligence (AI) is capturing investors’ attention, there’s another huge trend they should be aware of: cybersecurity. Bad actors have never had so many tools, and the amount of digital information accessible is growing too. This isn’t a trend that’s going away either; businesses must ensure they have top-notch security or risk becoming the target of a cyber attack, which could cost millions and destroy confidence in a business.
As a result of this new reality, the cybersecurity industry is booming. But with so many cybersecurity companies to choose from, it can be easy to get lost. One company is my clear choice, and this one has the potential to become a much bigger force in this sector.
CrowdStrike has become a top choice in cybersecurity
CrowdStrike (NASDAQ: CRWD) is my top choice in cybersecurity for many reasons. First, it is a lightweight cloud-native program. This means that it can easily be quickly deployed to all endpoints in a corporate network and does not take up much bandwidth. Furthermore, CrowdStrike has integrated AI into its product range since launch.
Unlike some companies that use AI as a buzzword, CrowdStrike’s platform is built on it. The main product on the Falcon platform is endpoint protection. This protects network access points such as laptops or mobile phones from outside threats, and CrowdStrike uses AI to analyze activity to understand whether it is normal or a threat. It can terminate access to a company’s server without human intervention if it detects a threat.
It also has its Charlotte AI, a generative AI product. This allows users to automate workflows, speed up research time and reduce the amount of skills required to become a cybersecurity expert. Based on a customer survey, Charlotte helps save approximately two hours per day through greater efficiency.
CrowdStrike has a huge product line that has been slowly growing over the past few years. Instead of having to piece together cybersecurity solutions from different vendors, CrowdStrike is working to become a one-stop shop for all cybersecurity needs. With products in endpoint protection, cloud security, identity protection, threat intelligence and more, CrowdStrike covers many areas.
This strategy has worked for CrowdStrike, as 64% of customers use at least five modules and 27% use at least seven. This shows plenty of room for product expansion among the customer base, so upselling existing customers and signing new customers gives CrowdStrike two growth opportunities.
CrowdStrike stock has become expensive
Speaking of growth, CrowdStrike has been showing excellent growth for some time now. In the fourth quarter of fiscal 2024 (ended January 31), annual recurring revenue (ARR) increased 34% year over year to $3.44 billion. Looking ahead to fiscal 2025, CrowdStrike expects revenue growth of 30% to nearly $4 billion. Despite CrowdStrike getting bigger, its growth is barely slowing, which is a testament to the demand in the cybersecurity industry and CrowdStrike’s prowess. In fact, Wall Street analysts believe revenue could grow 27% to over $5 billion by fiscal 2026.
CrowdStrike is also becoming increasingly profitable every quarter.
So you have a company that is a market leader in a fast-growing field and has excellent financial figures. It seems like a no-brainer purchase, right?
Investors should also consider the stock’s price tag. It’s no secret that CrowdStrike is an excellent company and its stock is priced accordingly.
A price of 28 times sales is very expensive, which is the main drawback of CrowdStrike stock. I use the price-to-sales ratio (P/S) because CrowdStrike has not yet reached maximum profitability. To translate this to the more familiar price-to-earnings (P/E) ratio, I give CrowdStrike an artificial profit margin of 30% – a great target for software companies like CrowdStrike.
With that profit margin, CrowdStrike would have a price-to-earnings ratio of 93 at current prices. Using analysts’ fiscal 2026 revenue forecast of $5.03 billion, CrowdStrike would trade at 56 times earnings.
That’s too expensive for many investors’ tastes, and I wouldn’t blame them for not buying at current prices. I’d keep CrowdStrike on your radar, though, because it’s too good a company to forget if the stock price drops to a more reasonable level.
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Keithen Drury holds positions in CrowdStrike. The Motley Fool holds and recommends positions in CrowdStrike. The Motley Fool has a disclosure policy.
Here’s My Top Cybersecurity Stock (and It’s Not Even Close) was originally published by The Motley Fool
