CrowdStrike stock price: CRWD valuation concerns remain

CrowdStrike (CRWD) stock price has staged a comeback in the past few weeks as investors wait for its upcoming earnings. After dropping to $201 in August, it has bounced back by over 52%, and is hovering near its highest level since July. Its market cap has moved to over $73 billion. 

CrowdStrike has been a top growth company

CrowdStrike has grown from a relatively small technology company a few years ago to become one of the biggest ones in the US. 

Its annual revenue has jumped from $481 million in 2020 to over $3 billion, a trend that may continue in the coming years.

CrowdStrike is one of many cybersecurity companies that have achieved that strong performance. For example, SentinelOne’s revenue has soared from $46.5 million in 2020 to $621 million last year.

Fortinet’s revenue has also moved from $2.1 billion to $5.3 billion, while Okta has moved from $586 million to $2.26 billion, respectively.

This growth will likely continue to do well in the coming years as the demand for cybersecurity rises.

However, it has not been a smooth ride, as we saw a few months ago when a CrowdStrike outage led the world to a halt. For example, Delta Air Lines noted that it lost over $500 million because of that outage, and has sued the company. 

As we wrote at the time, we don’t believe that the outage would lead to substantial client cancellations. Besides, all its competitors could have a similar outage.

Read more: CrowdStrike and Microsoft shares plunge after major outage

CrowdStrike earnings ahead

The next important catalyst for the CrowdStrike stock will be its quarterly earnings, which are expected to come in on November 26.

These results are expected to show that its revenue rose to $982 million in the third quarter, up from over $783 million in the same period last year. 

Analysts also expect that CrowdStrike’s annual revenue will jump by 27.50% to over $3.9 billion. They also see the revenue soaring to $4.77 billion in 2025. CrowdStrike has a long track record of doing better than what analysts expect.

Meanwhile, its profits are expected to do well. The earnings per share (EPS) are expected to come in at 81 cents, lower than the 82 cents it made in the same period last year. The decline will be because of the impact of the outage.

For the year, the earnings per share is expected to come in at $3.63, higher than the previous $3.09. Also, the earnings growth will continue rising, reaching $4.27 in 2025. 

Valuation concerns remain

The biggest concern for CrowdStrike stock is that it is a highly overvalued company since it has a market cap of over $74 billion and annual revenue expected to be $3.9 billion. This means that the company has a forward price-to-sales ratio of 18, a significantly higher number.

The valuation is also much higher than its trailing twelve-month (TTM) net income of $173 million. This means that the company has a forward price-to-earnings ratio of 664, significantly higher than the sector median of 28. The non-GAAP forward P/E ratio of 82 is much higher than the sector median of 23.

For SaaS companies like CrowdStrike, the best approach to value it is the rule of 40, which is made up of revenue growth and margins. CROWD’s revenue growth is 33% and its profit margin is 4.8%, bringing the total to 38%. This is a sign that the company is overvalued even using this metric.

These numbers mean that CrowdStrike will need to continue reporting strong results to justify the valuation. 

Double-digit growth metrics will likely be difficult in the coming years since most companies now have their cybersecurity providers. Also, competition in the sector is growing, with most of it coming from Wiz, a recently launched company that was about to be acquired by Google for over $20 billion. 

CrowdStrike stock analysis

CRWD chart by TradingView

The daily chart shows that the CRWD share price bottomed at $201 in August, and has bounced back by over 53% to the current $307. It has risen above the 38.2% Fibonacci Retracement level. 

CrowdStrike has also formed an ascending channel shown in black. It has also moved above all moving averages. The Relative Strength Index (RSI) has formed a bearish divergence pattern. Also, the MACD indicator has formed a bearish crossover pattern.

Therefore, there is a likelihood that the stock will have a bearish breakout in the coming days. If this happens, the next point to watch will be $201, the 50% retracement point. A move above the key resistance point at $324.86 will point to more gains. A move above that level will lead to more gains to $397, its highest level this year. 

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