CrowdStrike currently trades at $445.65 and has been a dream stock for shareholders. It’s returned 490% since May 2020, blowing past the S&P 500’s 94.2% gain. The company has also beaten the index over the past six months as its stock price is up 34.7% thanks to its solid quarterly results.
Is now still a good time to buy CRWD? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Are We Positive On CRWD?
Founded by George Kurtz, the former CTO of the antivirus company McAfee, CrowdStrike (NASDAQ: CRWD) provides cybersecurity software that protects companies from breaches and helps them detect and respond to cyber attacks.
1. ARR Surges as Recurring Revenue Flows In
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
CrowdStrike’s ARR punched in at $4.24 billion in Q4, and over the last four quarters, its year-on-year growth averaged 29%. This performance was fantastic and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes CrowdStrike a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue. 
2. Projected Revenue Growth Is Remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect CrowdStrike’s revenue to rise by 21.1%. While this projection is below its 39.7% annualized growth rate for the past three years, it is commendable and implies the market is forecasting success for its products and services.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
CrowdStrike has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging 27% over the last year. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.
Final Judgment
These are just a few reasons why we think CrowdStrike is a great business, and with its shares topping the market in recent months, the stock trades at 22.9× forward price-to-sales (or $445.65 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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