Can CrowdStrike’s share price keep on hitting?

As of 30 November’s close, CrowdStrike’s [CRWD] share price of $153.28 put the cybersecurity company up 210.03% for the year to date and just 1.2% below its 52-week high registered in October. Could the company’s third-quarter earnings, due on 2 December, push the stock even higher?

CrowdStrike’s share price got off to a steady start in January, climbing 32.4% year-to-date to close at $66.04 on 18 February. But, as COVID-19 spurred the March market sell-off, CrowdStrike’s share price soon dropped, falling to $33.01 on 16 March. This marked a 33.8% year-to-date decline and was the stock’s lowest-ever close since its market debut on 12 June last year.

However, CrowdStrike’s share price was quick to recover and was back in the green within a week of its slump, though it wasn’t until 20 April that the stock surpassed its February peak, closing at $68.43 — a 37.2% year-to-date climb. Since then, CrowdStrike’s share price has been following a steady upward trajectory and went on to set itself a new all-time high on with 13 October’s close of $152.80, up 206.4% since the start of the year.

Will CrowdStrike provide another earnings beat?  

When CrowdStrike announced its second-quarter report on 2 September, it announced earnings of $0.03 per share, beating the consensus estimate from Zacks Equity Research — a loss of $0.01 per share — by 400%. This marked a big improvement from the $0.18 loss per share the previous year. It also marked the fourth consecutive expectation-beating quarter for CrowdStrike.

On the other hand, revenues came in at $198.97m, exceeding expectations by 5.48% and marking a year-on-year growth of 84.0% from $108.11m. Similarly to its earnings, this was the fourth consecutive quarter to see CrowdStrike top revenue estimates.

While the earnings report had little effect on CrowdStrike’s share price, on 11 November the stock spiked when Jonathan Ruykhaver, analyst at Baird, upgraded his rating on CrowdStrike to Outperform from Neutral. He also raised his price target from $150 to $155, according to Barron’s.

Although Ruykhaver believed the work-from-home trend has benefitted CrowdStrike, he said it is “by no means a requirement”, and that the shift toward cloud-delivered security software “is here to stay”.

“We do not believe a return to office work results in any slowing momentum for the company” - Jonathan Ruykhaver

“We do not believe a return to office work results in any slowing momentum for the company,” wrote Ruykhaver.  

Looking ahead to the upcoming results, CrowdStrike is expected to report earnings of $0.15 per share. Meanwhile, quarterly revenues are expected to have grown 70.83% from last year, to a total of $213.74m.

For the full year, earnings are expected to come in at $0.06 per share, while revenue is projected to total $822.01m. Such estimates suggest respective year-over-year growths of 114.3% and 70.7%.

What the analysts think

“Overall, we believe CrowdStrike is well-positioned in endpoint [security] with a solution fundamentally better than those of its legacy peers and expect continued share gains,” said Ruykhaver.

As well as Baird acting bullish, “most analysts agree investors should expect about 25% annualised earnings growth from CrowdStrike,” Rich Smith wrote in TheMotley Fool.

Smith goes on to say that he’s more sceptical about CrowdStrike’s future growth. “What worries me about CrowdStrike is more the valuation that investors are being asked to pay for that growth,” Smith noted.

“With no GAAP earnings to speak of, I value CrowdStrike stock instead on its robust free cash flow (FCF) of $185m over the past 12 months. The problem is, when divided into CrowdStrike's $28.7bn market capitalisation, this means that CrowdStrike stock is selling for a massive 155 times trailing FCF.”

“Even a 25% growth rate isn't fast enough to support that kind of valuation for long -— which is why I'll ignore Baird's advice and will not invest in CrowdStrike Holdings,” Smith concluded.

“The problem is, when divided into CrowdStrike's $28.7bn market capitalisation, this means that CrowdStrike stock is selling for a massive 155 times trailing FCF. Even a 25% growth rate isn't fast enough to support that kind of valuation for long -— which is why I'll ignore Baird's advice and will not invest in CrowdStrike Holdings” - Rich Smith

CrowdStrike’s share price is rated Hold by Zacks, while the consensus among 20 analysts polled by CNN Money is to buy. This comes from a majority of 15, with one rating the stock as Outperform, another rating it as Underperform and three suggesting to hold CrowdStrike at its current share price.

Meanwhile, the median price target among 19 analysts polled by CNN Money stands at $163, which suggests a 6.3% upside on CrowdStrike’s share price as of 30 November’s close.