Can you buy CrowdStrike stock right now?

cloud strike (CRWD -3.94%) Outspoken co-founder and CEO George Kurtz went on the offensive during his last quarterly conference call, and the market responded well to his remarks. As a result, the leading endpoint cybersecurity software provider’s stock price has retained most of its 200%+ gain since the beginning of 2023.

Mr. Kurtz cast a subtle shadow on, and even tarnished, a number of his cybersecurity peers in his last earnings report. palo alto networks (NASDAQ:PANW) CrowdStrike’s integrated platform is poised to take market share in the highly competitive security software market. (By the way, the CEO of Palo Alto, and Z scaler‘s (NASDAQ:ZS) and cloudflare‘s respective co-founders and CEOs also tend to talk a lot about their colleagues’ failures on their quarterly calls with investors. )

Stripping away all the whining from cybersecurity leaders, investors should still keep an eye on CrowdStrike and may even consider buying the stock even though the stock is trading near all-time highs. The exact reason has become clear.

A market ripe for consolidation

All of the pure leaders in cybersecurity (other than the large diversified technology companies that offer a wide variety of cybersecurity products, including the Magnificent Seven) have often talked about the “platformization” of the industry. what’s that?

After years of rapid evolution, with the advent of cloud computing and the pandemic accelerating corporate security needs, organizations now have a large number of cybersecurity vendors to choose from. However, his CrowdStrike, Palo Alto Networks, which is a leader in endpoint security for laptops and other mobile devices, fortinet (NASDAQ:FTNT) Zscaler for legacy network security and Zscaler for cloud-based network security are looking to expand their offerings and offer more all-in-one packages to their customers. Not only will fewer vendors simplify your security team’s life, but consolidation can also lead to better results.

CrowdStrike believes this latter point in particular is an advantage. Kurtz and his colleagues often talk about his CrowdStrike single platform that covers multiple needs in software security. This simplifies security monitoring by eliminating the need to manage multiple modules and dashboards with disparate data (see diagram below).

Chart source: CrowdStrike.

There is some truth to this story of replacing small businesses to integrate the complex field of cybersecurity. The big four companies have been growing sales at a faster pace than the industry average for some time, and collectively stand out for their low-teens growth rate. CrowdStrike has been particularly prominent over the past five years, having just surpassed his $3 billion in sales in its first year.

Data by YCharts.

What is CrowdStrike’s enduring advantage in the security software race?

Despite its impressive growth, CrowdStrike has failed to appeal to a broader group of investors since its 2019 initial public offering (IPO). The reason is that it runs until the second half of the 2024 financial year (the 12 months ending in January). (2024), CrowdStrike operated at a generally accepted accounting principles (GAAP) loss. Of course, the company has always shown promise to eventually achieve his GAAP profitability. Its free cash flow (FCF) has been positive and increasing over time.

But many value-focused investors point to high employee stock-based compensation (excluded in FCF calculations) as a problem. There is good reason to be concerned about stock-based compensation, as it can unduly dilute existing shareholders. However, CrowdStrike has now managed to expand its business to a point where it is profitable in all respects and could satisfy a new group of shareholders. And on a per-share basis (which accounts for the increase in the number of shares), the argument that stock-based compensation is diluting shareholders is less important.

Data by YCharts.

More importantly than CrowdStrike’s fist-pumping about its software technology, profit metrics like this help companies make sure they have the right rights. business type for long-term success. To be clear, CrowdStrike still has a lot of progress to make on this front. But as it expands its cybersecurity platform, margins should continue to rise.

This is not a cheap stock, so all Value investors will want to buy in.CrowdStrike currently trades at over 80 times and over 60 times this year’s GAAP estimated earnings per share. next year’s Early revenue expectations. Nevertheless, the company expects its earnings to grow by an additional 30% in the 2024 calendar year, so there’s a lot to like about CrowdStrike if you plan to buy and hold for the long term. I’ve dabbled with this stock a bit more recently, so it remains on my watchlist.