Near All-Time Highs, Is It Too Late to Buy CrowdStrike Stock?

Crowd strike (CRWD 1.30%) the stock has now soared 140% in the last year alone. The leading provider of cloud-based endpoint cybersecurity software (protecting laptops, smartphones and general endpoint devices for businesses) has gone from strength to strength since its initial public offering (IPO). ) in 2019. But after the update of the first quarter of its 2025 fiscal year (the three months ended April 2024), which contributed to a more than 560% as of the fifth anniversary of the IPO, is it too late to buy?

It is undeniable that growth is slowing: is this really a problem?

CrowdStrike's annual revenue quickly surpassed the $3 billion mark, thanks to its rapid double-digit growth over the years. In terms of revenue, it still ranks third, far behind the old network cybersecurity giants. Palo Alto Networks And Fortinet.

Data by YCharts.

Co-founder and CEO George Kurtz says CrowdStrike is poised to compete with its two largest peers in a bid to generate $10 billion in annualized recurring revenue (ARR, a metric for subscription software companies) by the calendar year 2028.

However, with ARR increasing 33% year-over-year to $3.65 billion last quarter, there's no denying that CrowdStrike's upward trajectory has cooled as it continues to grow. enlarges. To achieve its ambitious $10 billion ARR goal, it will need to maintain average annual growth of nearly 30% over the next four years.

That's a tall order, and one the market clearly thinks is achievable based on the stock's current valuation. CrowdStrike shares trade at more than 90 times trailing 12-month free cash flow (FCF), a figure that is only justified when factoring in revenue growth of more than 20% and also some expansion of the FCF margin for at least a few years.

However, it is the latter point that investors should really focus on. Big revenue growth targets attract a lot of attention, but ultimately CrowdStrike's revenue slowdown is acceptable. In fact, just ignore the $10 billion ARR target if the company can continue to turn a profit.

The argument for CrowdStrike as a composing machine

CrowdStrike has already shown signs that it could be a long-term profitability generating machine. During its short existence as a publicly traded company, FCF has continued to grow. And despite high spending on employee stock-based compensation (a common problem for high-growth software companies), CrowdStrike also passed the generally accepted accounting principles (GAAP) net profit milestone during the last year.

Data by YCharts.

Indeed, it is these profit measures that can allow CrowdStrike to continue its progress. And with higher profitability and as the company matures (and its growth rate naturally slows), expect management to begin returning excess cash to shareholders at some point in the future – through a share buyback plan, for example. The balance sheet also certainly supports this trajectory with $3.7 billion in cash and short-term investments and only $743 million in debt at the end of April 2024.

That said, CrowdStrike's high valuation means investors should be in for a volatile ride. Wild stock price swings are the norm for young, high-growth companies like this. However, for investors looking for a long-term bet on cybersecurity, it appears that CrowdStrike has established itself as a leader with real longevity and an expanding product line that continues to win over new customers. . Rather than chasing the hot name and making a big CrowdStrike purchase, consider using a dollar-cost averaging plan to build a position incrementally over time.