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CrowdStrike Earnings Preview: A Buy Going into Earnings?

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CrowdStrike (CRWD - Free Report) , a leading cloud-based cyber security company reports earnings Wednesday, May 31 after the market closes. CRWD currently boasts a Zacks Rank #2 (Buy) and has shown very strong momentum since the beginning of the year.

After losing more than 60% of its value in 2022, CRWD is back to being a market darling, and is up 42% YTD. Additionally, CRWD stock is a popular holding in some of the leading and most savvy hedge funds in the market. Jim Simon’s Renaissance Technologies upped their stake in the stock by a factor of 10 in Q1, and now owns nearly 3 million shares.

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CrowdStrike’s founder, George Kurtz has a compelling history in the world of cybersecurity. At his first job out of school, working as a CPA at Price Waterhouse he became one of the first employees at the company’s new security group. While there he co-wrote the book Hacking Exposed, which would go on to sell 600,000 copies and be translated into 30 languages.

He would then go on to establish one of the first cyber security consulting firms, called Foundstone, which focused on vulnerability management. Five years later, security giant McAfee would acquire his company for $86 million, and name Kurtz senior vice president and general manager of risk management at McAfee.

Over time, Kurtz became frustrated that existing security technology functioned slowly and was not evolving at the pace of new threats. After resigning from McAfee, he would start-up CrowdStrike with a $25 million investment from Warburg Pincus. CrowdStrike became the first cloud-based security offering and would gain public attention for its investigation into the 2016 Democratic National Committee cyber-attacks.

Since its IPO in 2019 CRWD has grown at a blistering pace. Between just 2019 and today, annual revenues have nearly 10x’d from $250 million to $2.3 billion. CrowdStrike is gaining tremendously from the explosion in demand for security products as the global workforce moves increasingly remote, and online threats grow more numerous and complex.

Revenue at CrowdStrike is projected to grow at a CAGR of 28% through 2026, an envious rate of expansion.

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Because of its exceptional positioning, and huge growth, CRWD has seen steady revisions higher in its earnings estimates throughout its history. Current quarter earnings are projected to grow 61% YoY to $.50 per share, and sales are expected to climb 38% YoY to $674 million.

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CrowdStrike faces stiff competition in the cyber-security market. The primary competitors are Microsoft (MSFT - Free Report) , and Palo Alto Networks (PANW - Free Report) , who both offer strong suites of products. However, CrowdStrike is a one-stop shop for almost all types of security solutions providing a competitive advantage over other rivals that have mostly limited types of solutions.

Microsoft, Palo Alto Networks, and CrowdStrike have put up incredible performances YTD, all outperforming the industry and broad market. Palo Alto Networks edged out the strongest performance though.

It is worth noting that Palo Alto Networks and Microsoft both have a Zacks Rank #3 (Hold), indicating mixed earnings revisions, while CrowdStrike has a Zacks Rank #2 (Buy).

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PANW and CRWD are direct competitors in that they are both pure cyber security companies, while MSFT is obviously a more diversified, larger firm. Using customer reviews from Gartner, we can see CrowdStrike has better and more numerous reviews than Palo Alto Networks.

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From a technical perspective CrowdStrike stock looks quite bullish. The price has broken out of several bullish chart patterns and continues to push its yearly highs. While some sideways action may be warranted after such a strong run, stocks like this can often make it hard for investors to get involved and may not provide pullback to buy.

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Because of its strong industry positioning and high growth rates, CrowdStrike trades at an uber-premium valuation. Its trailing twelve-month price to sales multiple is 15.7x, which is well above the industry average 2.4x, but considerably below its two-year median of 36x.

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Bottom Line

CrowdStrike is an incredible company, with stellar growth rates, and innovative leadership. Its high Zacks Rank, strong product reviews, and favorable price action make CRWD a compelling investment worth considering. It is worth noting that the company’s sky-high valuation reduces the margin of safety, but sometimes, investors must pay up for companies like CrowdStrike.  

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