Cybersecurity giant CrowdStrike (NASDAQ: CRWD) will announce results for the third quarter of fiscal 2025 (ending October 31) at the end of November. The report will give investors a fresh look at the company’s handling of the catastrophic July 19 outage, which knocked 8.5 million computers offline worldwide and cost some of its top customers a combined $5 billion.
CrowdStrike shares fell 44% after the outage, but have already recovered half of that loss as the fallout wasn’t as bad as analysts expected. This is why the company’s quarterly results could accelerate its recovery, making the stock a great potential buy in November.
CrowdStrike continues to be a leader in the cybersecurity industry
During its conference call with investors for the second quarter of fiscal 2025 (ending July 31), CrowdStrike Chief Executive Officer George Kurtz said the outage caused many potential new customers to delay signing contracts. However, he said the majority of these deals are still in the sales pipeline, suggesting these companies simply wanted to see if the problem persisted and how the company would deal with the crisis.
There aren’t many good alternatives to what CrowdStrike offers its business customers. The cybersecurity industry has a history of fragmentation, meaning vendors typically specialize in specific products, requiring companies to build their software stack from multiple vendors. CrowdStrike offers a holistic cybersecurity platform, meaning it protects all aspects of the enterprise, from cloud networks to employee identities to endpoints.
CrowdStrike’s flagship Falcon platform offers a total of 28 modules (products). During the second quarter, the company said 65% of its customers used at least five. Moreover, the number of deals it signed for eight or more modules increased by 66% compared to the same period a year ago.
CrowdStrike’s holistic approach to cyber protection is connected by artificial intelligence (AI), which automates everything from threat detection to incident response. The company’s AI models are trained on more than 2 trillion incidents every day and become more sophisticated and accurate over time.
CrowdStrike also launched a virtual assistant for Falcon last year called Charlotte AI, and the company says it saves customers an average of two hours a day. Because it uses a chatbot interface and knows virtually everything about an organization’s digital environment, managers can request answers to customer questions 75% faster. Additionally, Charlotte AI is capable of autonomously generating incident reports, reducing the amount of manual investigative work for employees.
Image source: Getty Images.
The outage did not impact CrowdStrike’s long-term revenue forecast
The outage did not have a significant impact on CrowdStrike’s second quarter results as it occurred with less than two weeks remaining in the period. The company generated revenue of $963.9 million in the second quarter, which actually exceeded management’s expectations ($961.2 million).
The company also made no major changes to its forecast for fiscal year 2025 (which ends January 31, 2025). Management now expects to generate total revenue of $3.9 billion, downgraded from $4 billion previously – a change of just 2.5%.
That’s a good indication that CEO Kurtz expects the majority of deferred deals in CrowdStrike’s sales pipeline to close. But investors should pay close attention to further changes in the company’s prospects when its third-quarter report is released.
But there are other indications that the glitch may be nothing more than a blip. CrowdStrike reiterated its long-term goal of achieving $10 billion in annual recurring revenue (ARR) by fiscal year 2031. Considering the company had $3.86 billion in ARR at the end of the second quarter, that would represent a 159% increase over the next six years.
CrowdStrike stock can be cheap for long-term investors
CrowdStrike has only recently become profitable, reporting its first net profit in fiscal 2024, so it’s difficult to value the company based on the traditional price-to-earnings (P/E) ratio. The price-to-sales (P/S) ratio might be a better measure of its value, dividing market capitalization by the last twelve months’ sales.
By that metric, CrowdStrike has always been one of the more expensive cybersecurity stocks. It trades at a price-to-earnings ratio of 21.2, and while that’s down from its peak of almost 30 before the outage, it’s still much higher than the price-to-earnings ratio of its closest rival. Palo Alto Networks:
CRWD PS Ratio data according to YCharts
That said, CrowdStrike deserves a premium valuation over Palo Alto as it is growing significantly faster. Sales rose 32% in the second quarter, compared to a 12% increase for Palo Alto. As long as there are no further unexpected fallout from the July 19 incident, the valuation gap between the two companies is likely justified.
But the potential long-term opportunities for investors are even more exciting. If CrowdStrike hits its annual revenue target of $10 billion in fiscal 2031, the stock would have a forward price-to-earnings ratio of 7.3. If it maintains its current price-to-earnings ratio of 21.2, that means the stock could return 190% between now and then.
That translates to a compound annual return of 19.4% over the next six years, which is nearly double the average annual return of the S&P 500 from 1957. In other words, buying CrowdStrike stock can help you beat the market.
With the stock still down 23% from its all-time high, a positive third-quarter earnings report could encourage investors to see the worst is over. Therefore, buying in November before the company’s results could be an ideal entry point for the long term.
Don’t miss this second chance at a potentially lucrative opportunity
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
-
Amazon: If you had invested $1,000 when we doubled in 2010, you would have $21,217!*
-
Apple: If you had invested $1,000 when we doubled in 2008, you would have $44,153!*
-
Netflix: If you had invested $1,000 when we doubled in 2004, you would have $403,994!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns October 28, 2024
Anthony Di Pizio has no positions in any of the stocks mentioned. The Motley Fool holds and recommends positions in CrowdStrike and Palo Alto Networks. The Motley Fool has a disclosure policy.
