CWRD deserves our attention ? Read to know !
Intro.
The S&P 500 is one of the most important indexes in the financial markets.
While it consists of just the stocks of 500 companies, it represents about 80% of all US equities by market capitalization.
S&P 500 Index.
To become a member, a company must :
Obtain a market cap above $18 billion.
Produce a profit in the most recent quarter.
Produce a profit in the most recent 12-month period.
The stock must also have sufficient liquidity, of course!
Every quarter, a committee selects a few new stocks to join the S&P 500 while deleting other stocks to make room.
The goal is to include companies most representative of the large-cap space.
This quarter, the committee added cybersecurity leader $CrowdStrike Holdings, Inc.(CRWD)$ to the index.
Come Mon, 24 Jun 2024 — CrowdStrike will join the index alongside GoDaddy and $KKR & Co LP(KKR)$.
While, Robert Half, Comerica, and Illumina will be delisted from the index, to make room.
CrowdStrike is the most recent AI stock to join the all-important S&P 500, which has been dominated by AI innovators.
Even after climbing +266% since the start of 2023, Wall Street thinks there's still room for the stock to run.
Build competitive advantage with Data & AI
Over 50% of the Fortune 1000 use CrowdStrike's platform to secure their data.
CrowdStrike's specialty is endpoint security, that focuses on protecting company devices like computers and smartphones.
This is a naturally growing market, as businesses use more data, and more of that data is transmitted over the internet and stored in the cloud.
Global spending on endpoint security is expected to grow at a compound annual growth rate of +13% through 2029.
Management sees its total addressable market more than doubling between 2024 and 2028.
CrowdStrike is positioned to take a larger piece of the expanding pie.
Reasons how CrowdStrike is able to take the lion’s share of the expanding pie, is related to its existing position as the current market leader.
(1) Costs.
There are significant switching costs when it comes to changing cybersecurity software.
Managers do not want to risk cybersecurity breaches just to save a few bucks each month on software expenses.
Making CrowdStrike's services very sticky, as exemplified by its 98% gross-retention rate.
(2) Land & Expand strategy.
CrowdStrike has been very successful, implementing a land-and-expand strategy.
It sees a growing number of customers taking 5 or more of its services.
Its (a) cloud, (b) identity, and (c) SIEM (security information & event management) products all grew revenue 90% or more in 2023.
As a result, net-revenue retention is > 100%.
Its average recurring revenue grew +33% last quarter.
(3) AI Investment.
Another factor driving CrowdStrike's growth is its investments in artificial intelligence (AI).
Artificial intelligence is fueled by data, including feedback.
CrowdStrike's platform receives > 1 trillion signals daily.
It can train its AI to “ quickly” recognize and respond to threats faster than the competition.
Giving CrowdStrike something of a network advantage, which results in a virtuous cycle — the more companies using CrowdStrike's solutions the better those solutions perform.
Analysts: CrowdStrike still a “Buy”.
Several Wall Street analysts think CrowdStrike still has room to climb.
Out of the 50 analysts polled, 47 rated the stock a “Buy” or “Strong Buy”.
Of which $Wells Fargo(WFC)$ Andrew Nowinski has the highest price target on the Street and sees shares climbing to a possible $435 per share.
The favourable rating is due to CrowdStrike’s partnership with $Amazon.com(AMZN)$ . (see below)
Amazon will be replacing a variety of cloud-security products with CrowdStrike's from May 2024.
Other Considerations.
Investors may want to reconsider the stock at the current price ($382.14 per share), after its strong price appreciation in recent weeks.
At its current share price, there's only about 12.15% upside to Fargo’s Nowinski price target and the average on the Street is much lower.
Necessary Hold back ?
CrowdStrike currently trades at an enterprise-value-to-sales ratio of > 27x.
Although CRWD management expects revenue to keep climbing at a rate above 30% for 2025, that is still quite expensive for the stock.
That multiple is up from about 11x at the start of 2023, although close to its 5-year median.
The fair value of the stock may lie somewhere in the middle of those multiples.
Conclusion.
CrowdStrike is a market leader with clear competitive advantages.
It is exhibiting strong revenue growth.
There's a case to be made for the stock at this price.
However, there may be “better” alternatives in AI and cybersecurity in today's market.
*Personal note: Could they be referring to $SentinelOne, Inc(S)$ ? Ha, ha, ha.
My viewpoint: (mine only)
Besides going thru the facts mentioned in the Motely Fool post, I have verified them to be “true”.
Meaning, CRWD is undoubtedly the cybersecurity leader (like Nvidiais, in semiconductor).
Comparing its 20 Jun 2024 stock price ($382.14) and its 52-week high ($394.64), the difference is $12.50 or a possible +3.28% upside.
Like many IT stocks, CRWD does not issue dividends as well, a bummer (to me) actually.
However, I do like its “tightly-coupled” partnership with Amazon, one-seventh part of Magnificent 7.
There is definitely a lot to be said about Amazon partnering CrowdStrike on its Amazon Web Services (AWS) cloud servicing platform.
With the “AI infrastructure ground work” laid by the likes of Nvidia, the next evolution phase of AI has just begun.
That is the “Usage or application of AI” to improve the lives of individuals and the bottom line of corporates.
It is clear that CRWD falls into the latter with its implementation of AI in cybersecurity just like $Apple(AAPL)$, Google, Meta and of course ! Amazon.
Artificial Intelligence is in its nascent stage, when it comes to reaping its benefits. It pays to be the “Early bird that catches the worm”. CrowdStrike is one such birds.
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Modify on 2024-06-26 22:12
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just what everyone wanted to buy some weak hands then pump back the price.
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