Crowdstrike (NASDAQ: CRWD) operates in an intensely competitive cloud environment, with its main rival freemium model provider Cloudflare (NET). Despite the intense level of competition from its main rival, Crowdstrike continues to make strong gains in YoY revenue growth and most importantly, in free cash flow. Many cloud companies share the same weaknesses as other tech stocks in that they rarely produce cash flow for investors in their early years, or in Cloudflare’s case - for decades. The financial strength of Crowdstrike should not be understated and this is an important valuation metric when comparing the two companies, with Cloudflare opting for a longer-term play of total cash reinvestment.
CrowdStrike’s Impressive Fundamentals
CrowdStrike has excellent top-line growth. The company’s sales surged from $250 million in FY 2019 to $1.4 billion in FY 2022. The company is projected to continue its strong sales growth in the future. Analysts predict that Crowdstrike will generate $6.6 billion in yearly revenues by FY 2027. The strong top-line growth is catalyzed by the accelerating growth and cost of cyber attacks, particularly cyber extortion which surged during the pandemic.
Another feather in CrowdStrike’s cap is the fact that the company’s growth is also extremely consistent. The business beat revenue estimates each month since its IPO. Strong sales growth for CrowdStrike also comes with an enviable market share. The company currently owns 14.2% of the market, and its total addressable market is growing fast. Management estimated that its market was worth $25 billion at the time of its IPO, this number has since swelled to an impressive $126 billion due to increased demand for its services. Crowdstrike’s ultimate bottom line of free cash flow is also growing at a steady rate. Its free cash flow margin is expected to end at 30% for FY 2022. In summary, Crowdstrike offers high growth for investors while also being exceptionally profitable.
How CrowdStrike is Positioned for Future Growth in Cybersecurity
With a $126 billion TAM, Crowdstrike is competitively positioned to help companies secure their cloud environments with its Application Protection Platform (CNAPP). The business provides full-stack protection, meaning cloud configurations of any kind can optimize and protect their cloud architectures. This also allows for increased visibility and compliance to help prevent breaches and to monitor for misconfigurations. IT professionals can then manage their cloud workloads from one unified dashboard.
The company’s CNAPP platform offers additional protections against cyber extortion attacks, which are now the costliest form of attack for enterprises. The average cyber extortion demand climbed 82% from 2020 to 2021, with some payments being as high as $500,000. The total cost of cybercrime is estimated to end at $10.5 trillion per year by 2025.
CrowdStrike’s Price is Disconnected from its Fundamentals
No tech stock was spared from investors’ shifting risk appetites towards companies that are perceived to better hedge against inflation and rising interest rates, which includes exceptional companies like CrowdStrike. The company is currently down 24.74% YTD and is trading significantly below the MarketBeat consensus price target. This selloff is not as severe as some of its peers, which is owed to its incredible revenue growth and free cash flow.
When using linear regression techniques, the company's average price is still moving laterally over the long-term, which is despite the strong recent sell-off. The stock is clinging tightly to the lower deviation of the Bollinger Band and has since bounced off to give some breathing room for the bulls. The short-term expectation for the stock is that it will continue at lower levels. When the market moves from its accumulation phase to distribution again, it seems likely that many investors who buy now will be able to snatch up a strong company at a severely discounted share price.
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