CrowdStrike Holdings Inc. (CRWD Quick QuoteCRWD - Free Report) has seen a sharp 34.4% decline in its share price over the past month, a significant drop that has left many investors questioning whether now is the time to buy the dip.

The dramatic fall can be attributed to two main factors — a global IT outage caused by a faulty update to CrowdStrike's Falcon platform and a broader market sell-off fueled by macroeconomic concerns, including uncertainty around the Federal Reserve's interest rate policies and fears of a potential U.S. recession.

Image Source: Zacks Investment Research

The Impact of the Falcon Platform Update Failure

The most immediate and damaging event for CrowdStrike in recent weeks was the global IT outage caused by a defect in a content update for its Falcon platform. This update, which impacted around 8.5 million Windows devices, led to widespread system malfunctions across various industries, including banks, airports, hospitals and government agencies. The severity of the disruption raised serious concerns about the reliability of CrowdStrike’s cloud-native cybersecurity solutions.

Initially, there was some confusion over whether Microsoft Corporation (MSFT Quick QuoteMSFT - Free Report) or CrowdStrike was at fault as the outage only affected Windows systems. However, it was quickly clarified that the issue originated from CrowdStrike's update, not Microsoft's systems. CrowdStrike's CEO, George Kurtz, acknowledged the problem and assured that a fix had been implemented swiftly.

Despite the company’s rapid response, the damage to CrowdStrike's brand image was significant. Clients who rely on Falcon for their cybersecurity needs were left questioning the platform's robustness, and the incident has opened the door for competitors like Palo Alto Networks, Inc. (PANW Quick QuotePANW - Free Report) and Fortinet, Inc. (FTNT Quick QuoteFTNT - Free Report) to potentially poach some of CrowdStrike’s customers.

Risk of Customer Loss to Competitors

The fallout from the Falcon update fiasco could have longer-term implications for CrowdStrike. In the highly competitive cybersecurity market, trust and reliability are paramount. The recent outage has given competitors an opportunity to capitalize on any loss of confidence in CrowdStrike’s services.

Palo Alto Networks, for example, has a diversified mix of on-premise and cloud-based solutions, which may appeal to customers who are now wary of CrowdStrike’s cloud-native architecture. Similarly, Fortinet, with its strong reputation and extensive experience in delivering critical security solutions, could attract customers seeking a more dependable alternative.

Moreover, Microsoft's growing presence in the cybersecurity space could become a greater threat to CrowdStrike, particularly if organizations start reevaluating their cybersecurity strategies in light of the recent outage.

Lofty Valuation and Bearish Technical Signals

Adding to investors' concerns is CrowdStrike’s lofty valuation. Even after the recent drop, the stock still trades at high multiples relative to its earnings and revenues. Currently, CrowdStrike's forward 12-month price-to-earnings (P/E) ratio stands at 56.95X compared to the Zacks Internet - Software industry’s average of 31.32X. Similarly, its forward 12-month price-to-sales (P/S) ratio is 13.46X, significantly above the industry average of 2.44X.

These elevated valuations suggest that a lot of future growth is already priced into the stock, making it vulnerable to any further negative developments. Additionally, CrowdStrike shares have dipped below their 50-day and 200-day moving averages, a bearish technical signal that indicates the potential for continued downward pressure in the short term.

Moving Average

Image Source: Zacks Investment Research

Long-Term Prospects Remain Bright

Despite these challenges, it’s important to recognize that CrowdStrike’s long-term prospects remain robust. The company operates in a rapidly growing cybersecurity market, which is expected to expand at a CAGR of 9.4% from 2023 to 2028, according to MarketsandMarkets. This growth is driven by the increasing frequency and sophistication of cyberattacks, which necessitate advanced security solutions like those offered by CrowdStrike.

Furthermore, CrowdStrike continues to innovate and expand its Falcon platform, integrating data from more than 500 independent software vendors and enhancing its capabilities with new features. The company has also established significant partnerships, such as the Falcon for Insurability program, with major insurers like AXA XL and Beazley Insurance, which could lead to increased adoption of its platform.

In terms of financial performance, CrowdStrike has consistently delivered strong results. The company’s non-GAAP earnings surpassed the Zacks Consensus Estimate in each of the past four quarters, with an average surprise of 15.8%. For fiscal 2025, CrowdStrike expects revenue growth of 30.2% year over year, with non-GAAP earnings projected to rise by 27.2%.

Image Source: Zacks Investment Research

Conclusion: Hold for Now

While the recent dip in CrowdStrike’s stock price may seem like an attractive entry point, the risks associated with its high valuation, recent operational issues and potential loss of customers to competitors suggest that caution is warranted. The technical indicators also point to the possibility of further declines in the near term.

However, for existing shareholders, holding on to CrowdStrike stock seems prudent. The company’s strong market position, innovative product offerings and the overall growth potential of the cybersecurity market support the case for long-term growth. Therefore, while it may not be the best time to buy, holding CrowdStrike could prove beneficial as this Zacks Rank #3 (Hold) company works to restore confidence and capitalize on future opportunities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.