Key points
- CrowdStrike had another strong quarter, sending shares to another all-time high.
- Analysts are raising their price targets and guiding the market higher.
- The technical outlook suggests a gain of between $200 and 200% in the coming quarters and years.
- 5 stocks we like best about CrowdStrike
Price action in CrowdStrike NASDAQ: CRWD shares rose 25% following its fourth-quarter release and 2024 guidance, but the rally isn’t over yet. The results and outlook confirm that the company’s momentum is solid and analysts have underestimated its strength. The bottom line is that analysts are raising their price targets and leading the market higher.
The first dozen analyst revisions released after the release have stock prices in the $400 to $450 range, another 25% upside at the high end. Assuming this company continues to build on its successes, and there is no reason to think otherwise, CRWD’s price target will likely continue to rise this year and the $500 level will be reached before the end of the year.
CrowdStrike is the cybersecurity platform of choice
Due to its utility, CrowdStrike has emerged as a cybersecurity leader among the best-performing cybersecurity stocks. The company’s single-platform approach makes it easier for businesses to use and scale, the results show. The company’s fourth-quarter growth slowed as expected, but $845.6 million was up 32.6% year-over-year and nearly 100 basis points better than expected, compounded by strong guidance.
The key selling point is subscription growth and penetration, with subscriptions up 33% and ARR up 34%. ARR is solidly growing with a 27% increase in net ARR, supported by penetration. Service penetration can be seen in adoption rates, with customers using five or more modules up 64%, six or more up 43%, and seven or more modules up 27%.
Margin is also a positive aspect of the report, with gross margin up 300 basis points GAAP and adjusted. The combination of revenue strength and wider margin led to the fourth consecutive quarter of record net income, adjusted net income growth of 104%, and record operating and free cash flow. Free cash flow increased 31% year over year and substantially improved net worth.
As good as the results are, the guidance raises the market by 25%. The company guided its first quarter and fiscal 2024 in an above-consensus range, and forecasts may be cautious. The company has announced a definitive agreement to acquire Flow Security and the deal is expected to close this month. Flow Security is the only provider of runtime security for the cloud, a critical aspect of cloud-based cybersecurity.
Valuation is not an issue for CrowdStrike shareholders
CrowdStrike is among the most highly valued cybersecurity stocks, and its valuation is only getting richer. The post-release flat sees it trading near 95X versus 2024 forecasts and higher because long-term growth prospects are improving. The valuation will fall to just 75X for next year and halve in 2026, assuming the growth trajectory does not change. Since the company consistently outperforms, analysts’ guidance and forecasts are likely too light.
Insiders sell shares, but don’t give it too much importance. The company relies heavily on stock-based compensation and insiders are taking profits as the share price rises. Insiders still own more than 5% of the company and institutional holdings are also large. Institutions, including funds and private capital, have bought this stock on the balance sheet for five consecutive quarters and hold approximately 65% of the shares. The largest shareholders are Vanguard with over 10%, followed by iShares and Invesco.
Technical Outlook: CrowdStrike is on fire
CRWD stock price action is buzzing and could rise substantially over the next few quarters and years. The technical outlook alone suggests a potential move of $200 or 200% based on the magnitude of the pattern prior to the Q4 release. In this scenario, the stock could soon surpass $500 and sustain an upward movement into the $800 to $900 range.
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