Today’s episode - Undervalued After the Fall or a Falling Knife?

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Imagine a software glitch causing the most significant IT outage in history... Now, picture the company responsible, seeing its stock plummet 50% in weeks. That's CrowdStrike's harsh reality. But here's the twist: some see this as the ultimate buying opportunity. Is this a chance to snag a cybersecurity giant at a bargain, or are we witnessing a falling knife? Let's unravel this high-stakes investment puzzle together...

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CrowdStrike Holdings, Inc. (NASDAQ: CRWD) has faced a challenging period recently, with its stock plummeting dramatically due to a significant software outage. This event has raised concerns among investors and presents a potential buying opportunity. In this analysis, we'll explore whether now is the right time to invest in CrowdStrike and what factors could influence its future performance.

Recent Stock Decline and Buying Opportunity

In early July 2024, CrowdStrike experienced a significant setback when its software malfunctioned, leading to what is reported as the largest IT outage in history. This incident caused CrowdStrike’s stock to drop by about 50% in just a few weeks, falling from its peak of around $400 to a low of about $200.

Buying Range:

• $220-$200: This price range has been identified as a key buying opportunity. At this level, CrowdStrike's stock is considered undervalued compared to its historical highs.

Despite this drastic decline, CrowdStrike remains a compelling option for investors looking at long-term growth. The company’s leading position in the cybersecurity sector and its strong performance history suggest it could rebound and surpass its previous stock levels.

Why CrowdStrike Stands Out

CrowdStrike's Edge in Cybersecurity

CrowdStrike’s unique strengths in the cybersecurity field make it a standout choice compared to its competitors:

• User-Friendliness: CrowdStrike’s solutions are known for their ease of use and seamless integration.

• Comprehensive Coverage: Unlike some competitors, CrowdStrike provides extensive coverage against various cyber threats.

Comparison with Competitors:

• Microsoft Defender: Often criticized for inadequate coverage and susceptibility to breaches.

• Palo Alto Networks: Noted for its complexity in deployment and management.

• SentinelOne: Sometimes falls short in preventing breaches.

• Wiz: Lacks complete CNAPP functionality, unable to stop breaches.

• Splunk: Considered too slow for modern cyber threats.

• Other MDRs: Typically criticized for poor detection and slow responses.

CrowdStrike’s advanced systems and robust security infrastructure position it well to handle emerging threats and leverage AI advancements, supporting its long-term growth potential.

Financial Performance and Future Outlook

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Earnings and Valuation:

CrowdStrike has a history of outperforming earnings estimates. For instance, in its most recent fiscal year, the company reported an EPS of $3.44, exceeding the consensus estimate of $3.01 by 14%. Looking ahead:

• Projected EPS for Fiscal 2026: The consensus is around $4.80, but CrowdStrike could potentially deliver about $5.50, given its past outperformance.

Valuation:

• At its recent low of $200, CrowdStrike’s forward P/E ratio was roughly 36-33, indicating an exceptional value.

• With around $250, the stock remains an attractive investment compared to its historical valuation.

Future Revenue and EPS Growth:

CrowdStrike is expected to continue growing, with forecasts suggesting substantial revenue increases and EPS over the next several years:

• 2025: Revenue of $4.05 billion and EPS of $4.20.

• 2026: Revenue of $5.30 billion and EPS of $5.55.

• 2027: Revenue of $6.50 billion and EPS of $7.30.

The company’s strong market position and anticipated growth in revenue and earnings suggest a bright future.

Risks and Challenges

Potential Risks:

1. Reputational Damage: The recent outage could impact CrowdStrike’s reputation. Repeating such incidents could lead to losing key clients and long-term issues for the company.

2. Increasing Competition: The cybersecurity field is highly competitive, with numerous firms vying for market share.

3. Economic Conditions: A prolonged economic downturn or higher interest rates could affect CrowdStrike’s profitability and growth.

Mitigating Factors:

• Strong Balance Sheet: CrowdStrike’s financial health, with over $3.7 billion in cash, should help it weather short-term challenges.

• Customer Retention: Many clients may find switching providers too cumbersome, which could help CrowdStrike maintain its customer base despite recent issues.

Is it too late to invest in CrowdStrike?

For long-term investors, now might be an opportune moment to consider adding CrowdStrike to your portfolio. The current valuation is more attractive than in recent years, providing a potentially beneficial entry point. However, it is essential to approach with a balanced view, considering both the potential for future growth and the risks involved.

Investment Strategy:

• Dollar-Cost Averaging: Gradually building a position in CrowdStrike could be prudent, allowing investors to spread their risk over time.

Despite the recent setbacks, CrowdStrike’s strong market position, growth potential, and recent valuation adjustments make it a noteworthy consideration for those with a long-term investment horizon.

Remember, investing is a journey, not a sprint. While August and September may present challenges, they're also rife with opportunities for those willing to do their homework. Keep your eyes on the horizon, stay informed, and never stop learning.

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