Although CrowdStrike Valuations May Appear Insane, Company’s Outstanding Niche and Superb Growth Opportunity Makes It a Good Bet and Portfolio Inclusion

CrowdStrike (CRWD) delivered yet another strong quarter, though its stock took a hit amidst the tech sector rout. The stock with still-negative P/E and P/S to the tune of 50 (yes, it’s the double-digit number!) still doesn't trade cheaply but it has arguably earned a premium multiple through consistent growth and strong cash flow generation. What makes CRWD so unique that it’s valued so lavishly by the U.S. investors? It is a best in class cybersecurity company which has seen its customer base grow 75% CAGR. Cybersecurity is like insurance that all firms will need to purchase for cloud security.

In 2021, the number of cyberattacks around the world in order to obtain ransoms demanded by hackers continued to grow steadily. Many IT analysts attribute this trend to the popularization of ransom payments by transferring funds to crypto wallets, which many ransomware for the time being mistakenly consider to be more ID security friendly.

In 2021, the largest ransomware demand was towards an insurance company in the amount of $40 million, setting a new world record. (Business Insider, 2021) The average ransom requested has increased from $5,000 in 2018 to about $200,000 in 2020 (U.S. National Security Institute, 2021). The statistics from the beginning of this year is even more appalling.

Ransomware has shifted its focus to Managed Service Providers (MSPs), platforms that serve multiple customers at the same time. This means that if a hacker gains access to one MSP, he can also reach all the clients it serves. In most cases, MSPs are hacked due to poorly secured remote access tools.

CRWD almost perfectly shows what can be expected from a high-growth, highly volatile iconic tech stock, as it appears to move sharply higher during bull runs, and sharply lower during the bear market periods as it has as of late.

The strong growth, solid cash flow generation, and insurance-like niche all make CRWD look quite promising bet over time despite the above mentioned difficulties with its current multiples metrics. Even after the recent stock declines, CRWD visibly rebounded from its lowest price point near $190 and currently shows no signs of weakness.

At recent prices, CRWD is trading at an effective 1.4x price to earnings growth ratio (‘PEG’) based on 2022e sales, and 1.3x PEG based on 2023e sales. Yet those projections for 2022 and 2023 growth may look too idealistic for some, as CRWD should be able to get to around 20% growth just from dollar-based net retention alone.