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Bull of the Day: CrowdStrike (CRWD)

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CrowdStrike (CRWD - Free Report) is the $11 billion cyber-security darling of 2019 that IPO'd around $60 last June, ran to $100 in August and then just built a base around $45-50 in Q4.
 
And that was part of the reason I pounced on shares under $50 on December 30 once the selling appeared to be over.
 
In fact, the sellers may regret what they just did last month. Here's what I told my TAZR Trader group in the recent Buy Alert...
 
TAZR Traders: Portfolio is buying CrowdStrike (CRWD - Free Report) between $48 and $50.
 
CrowdStrike has a powerful AI/machine learning (ML) approach to 24/7 malware threats that can no longer be recognized with traditional "signature-based" metrics (past threat patterns).
 
CRWD became a Zacks #2 Rank after beating expectations and providing solid guidance in its Q3 report on Dec 5.
 
But the stock sold off afterwards, with particularly heavy volume on Dec 9 -- exactly 180 days after its IPO on June 12.
 
And that means it was IPO investors who were "locked-up" and just wanted out after missing their chance to sell at $100. Shares dropped from that peak during the Ukraine news.
 
The bad news is that just about any selling was justified in the second half based valuation alone as the stock still trades at 20X forward sales with a $10 billion market cap.
 
The good news is that the insider selling hardly put a dent in the potential turn that is setting up. In fact, shares couldn't even touch the Oct-Nov double bottom at $45 and there has been a good amount of volume this month showing willing buyers taking shares from shaky insider hands.
 
Now that they are out of the way, let's see what the growth and upside are for CRWD.
 
(end of excerpt from TAZR Buy Alert on Jan 30)
 
I went on in that report to describe the analysts who were turning bullish again, despite the valuation.
 
Silencing the Haters
 
Stifel Nicolaus raised their price target on CRWD shares to $90 after going over the company's Q3 beats in core SaaS metrics...
 
**ARR increased 97.4% y/y to $501.7 million vs. $465.2M Stifel estimate
 
**Total revenue increased 88.5% y/y to $125.1M vs. $119M Stifel estimate
 
**Subscription revenue increased 98.1% y/y to $114.2M vs. $108.5M Stifel estimate
 
Stifel analyst Gur Talpaz said CrowdStrike delivered "another clean beat" in Q3 across all major financial metrics and he believes the company's report "has put to bed unsubstantiated fears surrounding heightened competitive pressures and various conspiracy theories."
 
In a note titled "Mic Drop: CrowdStrike Silences the Haters," Talpaz added that he believes CrowdStrike's cloud-centric approach to endpoint and device security is increasingly resonating with customers and he continues to see the company having "a significant cloud-defined moat that other vendors are ill-equipped to compete against." 
 
Guidance Raised Ahead of Another Big Growth Year
 
CrowdStrike management also raised guidance for their Q4 FY20 (ends in January) with total revenue in the range of $135.9-138.6 million vs. prior consensus $127.2M.
 
This caused analysts not only to raise this year's EPS estimates but FY 2021 (begins February) jumped from a loss of 40-cents to a loss of just 21-cents.
 
The topline is expected to grow a healthy 42% from $467 million to $664 million in the new year.
 
Oppenheimer titled their post-earnings note: Solid F3Q20 Execution Supported by Record Net New Customer & ARR; Positive Cash Flow In Sight for FY21. They have a $100 PT on CRWD shares.
 
Mizuho analyst Gregg Moskowitz wrote that CrowdStrike Holdings reported another "spectacular quarter." Despite a high fundamental bar heading into the print, the company surpassed expectations as total annual recurring revenue growth of 97% year-over-year easily beat the Street's 85% estimate. The analyst continues to believe the stock will likely show a strong rebound over the next several months. He keeps a Buy rating on CrowdStrike with a $77 price target.
 
And on Dec 30, the day I first bought CRWD shares under $50, came this analyst move...
 
Needham Adds CRWD to Conviction List
 
Needham analyst Alex Henderson kept his Buy rating and $92 price target on Crowdstrike, and added the stock to the Needham Conviction List in favor of Zscaler (ZS - Free Report) , calling it his "Single Best Idea in Security" heading into 2020. The analyst said the company's "technology, platform and efficacy" combine to create "one of the core platforms in Security" regardless of its customer strategy. Henderson added that CrowdStrike offers the "right technology" to improve security for either legacy perimeter defense or for "emerging, zero-trust" cloud-direct security.
 
Customers from Goldman to Mercedes to US.Gov
 
Last week I wrote a longer piece on CRWD and my increasing conviction in the company's solutions and sales potential after (1) learning more about their customers and (2) understanding their use of AI and machine learning (ML) to tackle persistent malware attacks, especially from skilled adversaries from Iran...
 
 
In that short video and detailed article, I describe the security threats to banks, infrastructure, and technology networks that will only grow this decade, requiring 24/7 cyber "learning machines."
 
The Mercedes-AMG Petronas Formula 1 team did a video presentation with the company because their car engineers and technicians rely on CrowdStrike to protect the data streaming from thousands of sensors every time they test something.
 
Obviously, this group was willing to do a commercial for CrowdStrike. Hundreds of other companies probably don't want to talk about these data risks.
 
But just think about how many corps have similar voluminous proprietary data streaming in thousands of IoT channels that they need protected?
 
CrowdStrike Falcon on GovCloud
 
Another impressive customer win was at Goldman Sachs, where CISO (chief info security officer) Andy Ozment previously worked in senior-level US government roles for over 6 years. Obviously, the dude knows his stuff.
 
The most critical vulnerability we all share is a cyber-attack on government and utility services like happened in Atlanta in 2018.
 
Not surprisingly, Crowdstrike is already working closely with US agencies as Falcon on GovCloud provides the industry’s first cloud-delivered endpoint security and IT hygiene solution. Each component is tailored for securing the U.S. public sector, and is FedRAMP authorized and delivered from AWS GovCloud.
 
This is probably why CrowdStrike was such a natural choice for Ozment and Goldman.
 
Falcon on GovCloud enables customers to prevent all types of modern attacks and significantly reduces the cost of operating security infrastructure.
 
These things were on my mind last week after the US strike on Iran's top military general Qasem Soleimani. And it propelled me on Friday January 3 to issue this trade alert...
 
TAZR Traders: Portfolio is adding to CrowdStrike (CRWD - Free Report) under $51.
 
Looking for the massive call buying action in CRWD that I noted earlier this morning, I came across two other data points...
 
1) Nomura predicts that CrowdStrike is poised for "another year of hyper-growth." The comment came in Nomura's note previewing the year and the firm's best ideas. The firm maintains a Buy rating and $71 target on CrowdStrike.
 
2) As we evaluate what Iran is capable of and likely to do, I was reminded of the 2018 utility "ransomware" cyber-attack on Atlanta that was executed by two Iranian hackers. (story excerpt below from Wikipedia)
 
These might explain the bullish action in Jan, Feb, and March call options.
 
(end of Jan 3 TAZR Buy Alert)
 
Ransomware is Not New
 
According to CrowdStrike, an exponential growth curve of malware has made it a pervasive and persistent threat to end users. Most virus protection software can't catch half of it now.
 
What I love about the CrowdStrike approach to using AI and ML to seek and destroy cyber threats is that it's about "going where the ball will be."
 
In other words, the most sophisticated cyber threats of this decade won't be designed by humans. They will be machine-made.
 
So why not get ready for full-scale cyber war with the only tools that can win -- better machine programs that are constantly learning.
 
Besides that, even if CRWD is not the winner of this war, you and I will be because we'll be studying the most urgent application of ML and AI: national security.
 
Malware Meets Machine Learning
 
On Monday January 6, I gave my TAZR members this report...
 
Short Game in CRWD Getting Crowded
 
The investing crowd came for CRWD today and 4 more events made them chase the shares +9% on massive volume of over 21 million shares!
 
1. CrowdStrike CEO on Cramer's show Friday evening
 
2. Actual pro-Iranian hack of a US government website on Saturday (as I suggested was likely)
 
3. VMWare's head of cyber-security interviewed Friday evening on Bloomberg on his knowledge of the "footprints" and "lateral" threats now possible from Iran
 
4. Bloomberg published a story about the Iranian hack of Sheldon Adelson's Las Vegas Sands casino in 2014
 
All of this combined for a massive bonfire of short positions as new longs deployed fresh capital.
 
CRWD shorts had already been covering in December, leaving the shares short at just 6.5 million. So that's how we know there was even more fresh money pouring in to the stock.
 
In the article vlog linked above, I go over each bullet in more detail. I also evaluate the current odds of a major vs. minor cyber attack by Iran and share some of the 2020 CyberWar outlook from the analysts at SunTrust.
 
CrowdStrike seems pretty confident that their model of "cloud native" and data-centric solutions is a breakthrough in cyber security on par with Salesforce's CRM Cloud and Workday's HR Cloud.
 
If that claim of upper-tier industry domination is even half true, the stock has higher to go in 2020 and beyond.
 
Disclosure: I own CRWD shares for the Zacks TAZR Trader portfolio.
 
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