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CrowdStrike (CRWD) Up 45% YTD: What Should Investors Do Now?
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CrowdStrike Holdings, Inc. (CRWD - Free Report) has been a darling of the cybersecurity sector, demonstrating impressive growth and a robust business model. CRWD stock witnessed a remarkable run last year, with the share prices soaring nearly 143% in 2023.
Shares of this cybersecurity solution provider have carried on the momentum this year, with its share price gaining 45.4% year to date (YTD). The stock has also outperformed the Zacks Internet – Software industry’s gain of 12.7% during the same time frame.
However, with such a substantial run-up in its stock price, the critical question arises: should investors buy, hold or sell CrowdStrike shares now?
Despite its solid performance and market position, there are several factors that suggest investing in CrowdStrike at its current valuation might be a risky bet. Let's delve into the key reasons.
Image Source: Zacks Investment Research
Lofty Valuations
Despite its solid fundamentals, CrowdStrike’s current valuation raises concerns. The stock trades at high multiples relative to its earnings and revenues. Currently, CrowdStrike's price-to-earnings (P/E) and price-to-sales (P/S) ratios are significantly above the industry average.
CRWD stock is currently trading at 84.83X forward 12-month earnings compared with 33.66X for the Zacks Internet – Software industry. Similarly, it trades at 20.25X forward 12-month sales compared with the industry’s 2.59X.
These elevated valuations indicate that a lot of future growth is already priced into the stock, leaving it vulnerable to any negative news or earnings misses.
Moreover, closing at $371.32 as of Jul 12, CRWD stock trades near its 52-week high of $398.33, showing its limited potential for further upward movement.
Slowing Growth Rates
Although CrowdStrike has experienced impressive growth since its IPO, recent quarterly reports have shown a deceleration in its growth rate. The company's revenue growth, while still robust, is not as explosive as in previous years.
CrowdStrike had enjoyed more than 50% year-over-year top-line growth till fiscal 2023. However, the growth rate decelerated in fiscal 2024 to 36%. The current Zacks Consensus Estimate for fiscals 2025 and 2026 suggests that the top-line growth will further decelerate to 31% and 26%, respectively.
Image Source: Zacks Investment Research
Similarly, its non-GAAP earnings increased by more than 100% in each of the past four fiscals. However, the consensus mark for fiscal 2025 and 2026 earnings implies growth of approximately 29% and 21%, respectively.
Image Source: Zacks Investment Research
This slowdown is partly due to the law of large numbers — as companies grow larger, maintaining high percentage growth rates becomes increasingly difficult. Additionally, heightened competition from both established players and new entrants in the cybersecurity space could put further pressure on CrowdStrike’s growth.
Additionally, CrowdStrike’s near-term prospects might be hurt by softening IT spending as enterprises are postponing their large tech investment plans due to macroeconomic uncertainties and geopolitical issues. Some of the cybersecurity players have already pointed out that organizations are delaying or taking more time in finalizing deals or even rightsizing deals in the current uncertain macroeconomic environment. This makes us slightly cautious about CrowdStrike’s prospects in the near term.
Intensifying Competition
The cybersecurity industry is highly competitive, with numerous well-established players such as Palo Alto Networks, Inc. (PANW - Free Report) , as well as emerging companies like SentinelOne, Inc. (S - Free Report) . CrowdStrike has managed to differentiate itself with its cloud-native platform and AI-driven threat detection capabilities. However, the competitive landscape is continually evolving, and maintaining a technological edge is a constant challenge.
Palo Alto Networks is aiming to consolidate its customer base into a unified security platform, which will help its clients reduce their reliance on smaller cybersecurity firms for specific services. The strategy would have long-term benefits, including a more stable, predictable revenue stream and stronger market positioning. SentinelOne is bolstering its capabilities through partnerships with the likes of SecureWorks, ServiceNow and Amazon.
Moreover, large tech companies with substantial resources are increasingly focusing on cybersecurity. For example, Microsoft Corporation's (MSFT - Free Report) aggressive push into cybersecurity with its Azure Sentinel platform poses a significant threat. These competitors can leverage their existing customer relationships and financial muscle to gain market share, potentially squeezing CrowdStrike's margins and growth prospects.
Sell, the Prudent Move
Given the combination of lofty valuations, intense competition, slowing sales growth and macroeconomic headwinds, selling CrowdStrike stock now appears to be a prudent move. This Zacks Rank #5 (Strong Sell) company’s impressive YTD performance provides an opportunity for investors to lock in gains and reassess their investment strategy.
CrowdStrike’s future undoubtedly holds promise, and the company remains a leader in the cybersecurity space. However, the current stock price reflects a high degree of optimism and leaves little room for error. By selling now, investors can mitigate potential downside risks and reallocate their capital to opportunities with more favorable risk-reward profiles.
In conclusion, while CrowdStrike’s fundamentals are strong, the significant run-up in its stock price suggests that now may be an opportune time to take profits.
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CrowdStrike (CRWD) Up 45% YTD: What Should Investors Do Now?
CrowdStrike Holdings, Inc. (CRWD - Free Report) has been a darling of the cybersecurity sector, demonstrating impressive growth and a robust business model. CRWD stock witnessed a remarkable run last year, with the share prices soaring nearly 143% in 2023.
Shares of this cybersecurity solution provider have carried on the momentum this year, with its share price gaining 45.4% year to date (YTD). The stock has also outperformed the Zacks Internet – Software industry’s gain of 12.7% during the same time frame.
However, with such a substantial run-up in its stock price, the critical question arises: should investors buy, hold or sell CrowdStrike shares now?
Despite its solid performance and market position, there are several factors that suggest investing in CrowdStrike at its current valuation might be a risky bet. Let's delve into the key reasons.
Image Source: Zacks Investment Research
Lofty Valuations
Despite its solid fundamentals, CrowdStrike’s current valuation raises concerns. The stock trades at high multiples relative to its earnings and revenues. Currently, CrowdStrike's price-to-earnings (P/E) and price-to-sales (P/S) ratios are significantly above the industry average.
CRWD stock is currently trading at 84.83X forward 12-month earnings compared with 33.66X for the Zacks Internet – Software industry. Similarly, it trades at 20.25X forward 12-month sales compared with the industry’s 2.59X.
These elevated valuations indicate that a lot of future growth is already priced into the stock, leaving it vulnerable to any negative news or earnings misses.
Moreover, closing at $371.32 as of Jul 12, CRWD stock trades near its 52-week high of $398.33, showing its limited potential for further upward movement.
Slowing Growth Rates
Although CrowdStrike has experienced impressive growth since its IPO, recent quarterly reports have shown a deceleration in its growth rate. The company's revenue growth, while still robust, is not as explosive as in previous years.
CrowdStrike had enjoyed more than 50% year-over-year top-line growth till fiscal 2023. However, the growth rate decelerated in fiscal 2024 to 36%. The current Zacks Consensus Estimate for fiscals 2025 and 2026 suggests that the top-line growth will further decelerate to 31% and 26%, respectively.
Image Source: Zacks Investment Research
Similarly, its non-GAAP earnings increased by more than 100% in each of the past four fiscals. However, the consensus mark for fiscal 2025 and 2026 earnings implies growth of approximately 29% and 21%, respectively.
Image Source: Zacks Investment Research
This slowdown is partly due to the law of large numbers — as companies grow larger, maintaining high percentage growth rates becomes increasingly difficult. Additionally, heightened competition from both established players and new entrants in the cybersecurity space could put further pressure on CrowdStrike’s growth.
Additionally, CrowdStrike’s near-term prospects might be hurt by softening IT spending as enterprises are postponing their large tech investment plans due to macroeconomic uncertainties and geopolitical issues. Some of the cybersecurity players have already pointed out that organizations are delaying or taking more time in finalizing deals or even rightsizing deals in the current uncertain macroeconomic environment. This makes us slightly cautious about CrowdStrike’s prospects in the near term.
Intensifying Competition
The cybersecurity industry is highly competitive, with numerous well-established players such as Palo Alto Networks, Inc. (PANW - Free Report) , as well as emerging companies like SentinelOne, Inc. (S - Free Report) . CrowdStrike has managed to differentiate itself with its cloud-native platform and AI-driven threat detection capabilities. However, the competitive landscape is continually evolving, and maintaining a technological edge is a constant challenge.
Palo Alto Networks is aiming to consolidate its customer base into a unified security platform, which will help its clients reduce their reliance on smaller cybersecurity firms for specific services. The strategy would have long-term benefits, including a more stable, predictable revenue stream and stronger market positioning. SentinelOne is bolstering its capabilities through partnerships with the likes of SecureWorks, ServiceNow and Amazon.
Moreover, large tech companies with substantial resources are increasingly focusing on cybersecurity. For example, Microsoft Corporation's (MSFT - Free Report) aggressive push into cybersecurity with its Azure Sentinel platform poses a significant threat. These competitors can leverage their existing customer relationships and financial muscle to gain market share, potentially squeezing CrowdStrike's margins and growth prospects.
Sell, the Prudent Move
Given the combination of lofty valuations, intense competition, slowing sales growth and macroeconomic headwinds, selling CrowdStrike stock now appears to be a prudent move. This Zacks Rank #5 (Strong Sell) company’s impressive YTD performance provides an opportunity for investors to lock in gains and reassess their investment strategy.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CrowdStrike’s future undoubtedly holds promise, and the company remains a leader in the cybersecurity space. However, the current stock price reflects a high degree of optimism and leaves little room for error. By selling now, investors can mitigate potential downside risks and reallocate their capital to opportunities with more favorable risk-reward profiles.
In conclusion, while CrowdStrike’s fundamentals are strong, the significant run-up in its stock price suggests that now may be an opportune time to take profits.