Buy CrowdStrike Holdings (Motley Fool)
Tom Gardner July 2, 2020 Buy Recommendation
Current Price: CRWD $ 106.14 $ 3.19 (3.1%) Price as of July 2, 1:43 p.m.
Key Data
What It Does
Cybersecurity expert CrowdStrike Holdings offers enterprise clients its threat-monitoring Falcon platform. By concentrating on endpoint connections to the internet, CrowdStrike can detect attacks before they strike critical IT infrastructure, and it can then warn its entire client base to help defend against similar attacks.
Why You Should Buy
The cybersecurity products that rival companies offer aren't as effective as CrowdStrike's Falcon, which combines machine learning, artificial intelligence, behavioral analytics, and proactive threat hunting.
CrowdStrike has a strong leader at the helm, as co-founder/CEO George Kurtz has considerable experience in cybersecurity and retains a substantial stake in the company's stock.
The ongoing migration toward digital resources makes CrowdStrike's addressable market bigger than ever, and the company has capitalized on its opportunities to grow its revenue substantially.
Buyer's Guide
Industry: Security Software
Size: Large Cap
Region: North America
Key Data
Headquarters: Sunnyvale, California
Website: CrowdStrike investor relations
Market Cap: $21.3 billion
Cash/Debt: $1 billion / $0 as of Q1 fiscal 2021
Revenue (FY 2019/'20/TTM): $250 million / $481 million / $563 million
Earnings (FY 2019/'20/TTM): ($140 million) / ($142 million) / ($135 million)
Recent Price: $102.95
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Financial data from S&P Global Market Intelligence.
Data as of July 2, 2020
I offer some reminders before sharing this month’s second recommendation of CrowdStrike Holdings (NASDAQ: CRWD), a business that I believe has powerful network effects and is positioned for rapid growth in sales and cash flows. CrowdStrike will protect organizations from a growing number of cyber threats, and I expect those clients to increase their spend annually. Now, for my key reminders:
I urge you to own at least 25-30 of our Motley Fool recommendations.
I urge you to hold all of these investments for at least five years.
I urge you to consider having a 5%-10% cash position in your portfolio.
I urge you to never go on margin, or borrowing money to buy stocks.
I urge you to accept that I will deliver some doggishly bad investments.
I urge you to hold your winners and add to them.
I urge you to accept that the market will fall 20%-40% at times along the way.
I urge you to keep saving and investing for the rest of your life.
I urge you to take action to advance freedom, safety, and opportunity for every single human being, with a focus on those in marginalized, underserved, and underrepresented populations — as that simply leads to (among other great things) healthier, more innovative, and more dynamic markets.
These nine principles, in my experience, have led to tremendous wealth accumulation for everyday Fools like us. Successful investing takes time. It takes discipline. It takes wherewithal. It takes the true desire to have a stronger financial foundation and a better life. Let’s make it fun, interesting, and Foolish as well.
The Big-Picture Opportunity
The digital revolution hasn't just forced companies to embrace technology. It's also left them potentially exposed to all the threats that are part and parcel of collecting and storing data. Moreover, as the complexity of IT infrastructure has risen, so, too, have the complications involved in making sure that key information and resources are safe. When so many mission-critical resources are stored in the cloud, the number of threats rise exponentially.
CrowdStrike Holdings recognizes that cybercrooks keep leveling up their game. But the company has put the power of positive network effects on its side. By effectively helping its entire base of enterprise clients collaborate with one another about the attacks they've faced, CrowdStrike's Falcon platform learns from past experience and immediately puts that knowledge to use in detecting threats and anticipating the next attack.
Why We're Excited About CrowdStrike Holdings
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CrowdStrike knows that the days of effective on-premises-only cybersecurity measures are over, and Falcon was designed specifically with the cloud in mind. To do so, CrowdStrike identifies the most vulnerable spots at which its clients and their respective customers and employees have to be on their guard. The places where critical information comes into contact with the broader internet -- whether via an in-house server or workstation, a remote worker's laptop or smartphone, or a customer's mobile app -- need the most protection. That's where Falcon concentrates its attention in detecting attacks. It's also where its revolutionary Threat Graph breach prevention engine shines, because in defending one client, CrowdStrike gets valuable insight into how to protect all of its clients.
Co-founder and CEO George Kurtz explained the core concept underlying Falcon's approach at a conference in early June. Kurtz found that even as many niche industries in technology moved into the cloud, there wasn't really a cloud-first security platform until CrowdStrike filled the void. Traditional firewalls and antivirus software became increasingly ineffective, but legacy cybersecurity companies had too much invested in their past business models to make the disruptive leap necessary to address the rapidly evolving threats to cloud assets. That left the door open to CrowdStrike's move into the cloud.
Why We Trust Leadership
The fact that Kurtz had the vision and courage to make that move is the key reason we're so confident in his ability to keep leading CrowdStrike forward. He had the same experience as many of his peers, developing his own cybersecurity solution and selling his business to industry leader McAfee. He could have rested on his laurels and remained on board as McAfee's chief technology officer. Instead, Kurtz refused to accept the second-best solutions he saw there. He found a kindred spirit in fellow co-founder Dmitri Alperovitch, and they started CrowdStrike.
It's not surprising to see that Kurtz has set things up to steer CrowdStrike well into the future. With about 8% of the company's shares, Kurtz now has $1.8 billion of his own money tied up in CrowdStrike, and the 49-year-old's super-voting shares give him more than a fifth of the voting power shareholders have. We're excited about having him at the helm for years to come.
Why Now
When we first recommended CrowdStrike last month, we said a lot about the past growth that the company has enjoyed. Its fast-growing client base includes some of the top companies in the world, and those clients tend to spend more and more for CrowdStrike's protection as they stick with the platform.
The COVID-19 pandemic has dramatically changed the landscape for enterprise tech, and CrowdStrike is jumping at the chance to extend its reach and appeal to a growing set of new customers. The company extended special terms to some of its customers and to businesses in industries such as airlines and hospitality that the crisis hit hardest. CrowdStrike has worked closely with clients to help them deal with the rapid rise of remote work, which created challenging situations for companies that hadn't previously dealt with the heightened dangers inherent in allowing remote access to critical work functions.
Unfortunately, the pandemic has also raised the overall threat level for cyberattacks. As one customer told Kurtz, "Our adversaries will be more motivated than ever to harm us now, when they think we may not be paying attention." Yet that's also an opportunity for CrowdStrike, which the same customer said has become "the linchpin of our security program."
Kurtz sees the move to remote and hybrid workforces as accelerating the existing secular trend toward the cloud. Even in uncertain macroeconomic times, that trend will continue, and CrowdStrike has made it a priority to use that tailwind to its advantage.
Potential Business Risks
With that growth opportunity, however, comes financial risk. CrowdStrike is losing money, and promotional efforts to boost sales growth will likely push back the timeline on the company eventually reaching profitability. We're comfortable with short-term losses as long as they lead to greater long-term profits, but we'll be watching spending closely to make sure CrowdStrike is doing it smartly.
CrowdStrike stock has held up well, and that's kept its price-to-sales ratio between 35 and 40 even as revenue grew in the first quarter. We're used to seeing rich valuations on successful high-growth stocks, but investors need to be comfortable with a razor-thin margin of safety if an adverse event affects the cybersecurity company or the tech industry.
Why CrowdStrike Holdings Is Worth an Investment Today
It's not often that we recommend a stock two months in a row. But the company's unique opportunity in the key cybersecurity niche of the increasingly important cloud computing space justifies a quick repeat pick in our view. With CrowdStrike moving forward quickly to capture more market share, it still has a long way to go higher
