Should You Buy CrowdStrike Stock Now That It’s A part of the S&P 500?

The most recent rebalancing for the S&P 500 took place in mid-June, and cybersecurity darling CrowdStrike (NASDAQ: CRWD) earned a spot within the esteemed index. While getting added to the S&P 500 is a formidable milestone, it isn’t reason enough to purchase a stock. Nevertheless, CrowdStrike is firing on all cylinders, and I believe it is best days are ahead.

Let’s dig into the corporate’s progress and explore why now could be a lucrative opportunity for long-term investors to own CrowdStrike.

CrowdStrike is in a league of its own

CrowdStrike operates within the cybersecurity industry and focuses on threat detection and endpoint protection through its flagship platform, called Falcon. While the cybersecurity landscape is ripe with competition, CrowdStrike stands out as a winner, due to its proven ability to cross-sell.

For the corporate’s first quarter of fiscal 2025 (ended April 30), nearly two-thirds of CrowdStrike’s total customers were using five or more products. Furthermore, recent deals with eight or more products increased 95% 12 months over 12 months. By selling multiple products to its customer base, CrowdStrike can expand its recurring revenue base, all while recognizing strong profit growth.

For the quarter ended April 30, CrowdStrike’s annual recurring revenue (ARR) increased 33% 12 months over 12 months to $3.7 billion. Moreover, the corporate posted net income of $43 million throughout the first quarter, in comparison with just $0.5 million throughout the same period last 12 months.

The mixture of accelerating revenue and profit growth is encouraging, and I believe it’s just getting began.

Image source: Getty Images

The party is just getting began

Back in 2022, CrowdStrike released an investor presentation showcasing a complete addressable market (TAM) size of $75 billion at the moment. Management further explained that with the corporate’s current product portfolio at the moment, the TAM could reach $97 billion by 2025 and $158 billion by 2026 should CrowdStrike execute on its new-product roadmap.

Clearly, quite a bit has modified during the last couple of years. Not only are cybersecurity protocols more vital than ever to combat hackers and protect data and privacy, but developments in artificial intelligence (AI) are making their solution to nearly every use case within the tech realm.

Based on the corporate’s most up-to-date investor presentation, CrowdStrike now believes its TAM is $100 billion. What’s more, management sees the addressable market expanding to $225 billion by 2028 as generative AI becomes increasingly featured in cybersecurity tools.

Is CrowdStrike a superb stock to purchase right away?

CrowdStrike has proven that it may well compete in an intense cybersecurity market and achieve this in a highly profitable way. Furthermore, as AI demand continues to surge, the corporate ought to be ready to learn from secular tailwinds.

The one drawback of investing in CrowdStrike is its pricey valuation. Straight away, its stock trades at a forward price-to-earnings (P/E) ratio of 96 and a price-to-free-cash-flow (P/FCF) multiple of 93.

Simply put, the stock is pricey — even for growth investors. With that said, I still think CrowdStrike is a compelling opportunity.

The speed at which the corporate and its addressable market are growing shouldn’t go unnoticed. Cybersecurity in and of itself is a giant market, and CrowdStrike has built a formidable position, though there are lots of larger, better-capitalized players. Moreover, now that AI has develop into increasingly more vital for businesses of all sizes, CrowdStrike suits squarely on the intersection of two of the tech sector’s hottest end markets.

Considering the corporate’s ARR of $3.7 billion represents only one.6% of the present estimated market size, CrowdStrike has an extended solution to go before its business starts to mature or plateau.

I believe CrowdStrike’s premium valuation is warranted and I’m optimistic the corporate can proceed generating strong top-line growth, supplemented by robust money flow. Long-term investors will want to consider a position in CrowdStrike as a hedge to other AI stocks. It’s a number one company amongst cybersecurity opportunities.

Do you have to invest $1,000 in CrowdStrike right away?

Before you purchase stock in CrowdStrike, consider this:

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Adam Spatacco has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends CrowdStrike. The Motley Idiot has a disclosure policy.

Should You Buy CrowdStrike Stock Now That It’s A part of the S&P 500? was originally published by The Motley Idiot

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