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CrowdStrike stock has tumbled: buy the dip or sell the rip?

Writer's picture: Chris Chris

CrowdStrike image
CrowdStrike

CrowdStrike (CRWD) is a leading cybersecurity company with over $74 billion in market cap and $3 billion in annual revenue. It is the second-biggest name in the industry after Palo Alto Networks, which is valued at $107 billion.


CrowdStrike is a pioneer in the cybersecurity space because it introduced the concept of threat protection in the cloud. This is an important area now that most companies have moved from on-premises data storage to the cloud. 


Its main product is known as Falcon, which is made up of cloud security, endpoint security, exposure management, managed services, and counter adversary operations. The company’s solutions are used by companies like Google, Amazon, Target, and Petronas. 


According to Gartner, the company leads in Endpoint protections and is followed by companies like Microsoft, SentinelOne, TrendMicro, and Palo Alto Networks.

CrowdStrike stock was trading at $304 while its negative hype index stood at 69.


Positive hype


CrowdStrike stock dropped by over 11% on Friday after its upgrade led to a major outage in industries like travel, credit cards, banks, and hotels. Despite these challenges, there are some positive hypes about the company.


  • CrowdStrike identified the error that led to the outage and fixed it. While the impact will be felt for a long time, fixing the error within a few hours was a positive thing. 


  • Analysts believe that only a few companies will decide to cancel their CrowdStrike subscriptions. Besides, other cybersecurity companies like Palo Alto Networks, Okta, and Fastly have had big outages in the past. 


  • CrowdStrike has a good reputation since it has maintained a stable network for over 13 years.


  • Additionally, historically, investors tend to overreact when there is a major event. For example, Meta Platforms stock crashed after the Cambridge Analytica scandal while Experian shares fell after a data breach that affected 24 million customers. These stocks have bounced back and moved to their all-time lows.


  • Meanwhile, CrowdStrike’s business has been doing well in the past few years. Annual revenue rose from $481 million in 2019 to $3.05 billion in 2023. Analysts expect that its annual revenue will rise to $4 billion this year and $5.05 billion in 2026. 


  • CrowdStrike has become profitable as its annual profit rose to $90.6 million in 2023. Analysts expect that its earnings per share will be $4 this year followed by $4.92 in 2024. 


  • It has the potential of growing its profit margins in the future. Its gross margin stood at 75.30%, higher than other companies like Palo Alto Networks (74.4%). As such, it can achieve PANW’s profit margins of 31%, up from its current 4%.


Negative hype


CrowdStrike has had several notable negative hype events:

  • Last week’s outage will likely affect its profitability as the company reaches out to existing customers to assure them about its service. 


  • CrowdStrike will likely continue having negative headlines and even fines in the next few years. These headlines could hinder potential new companies from becoming customers.


  • The company is severely overvalued since it has an EV to EBITDA multiple of 491 and P/E ratio of 88. These are big numbers even though the company has revenue growth metrics of 31%. In contrast, Nvidia, which is growing by over 200% has a P/E ratio of 65. This means that the company will need to execute well even as the cybersecurity industry slows.


  • CrowdStrike exists in an industry with substantial competition. Some of the top competitors are Palo Alto Networks, Fortinet, Zscaler, Gen Digital, and Wiz.


  • CrowdStrike was recently downgraded by Redburn Atlantic and Piper Sandler on valuation concerns.


Final thoughts on CrowdStrike stock



CrowdStrike stock
CrowdStrike stock


CrowdStrike stock crashed by over 11% on Friday and continued the sell-off on Monday as it dropped by 4% in the premarket. Historically, I have observed that stocks extend their gains or losses after a big event for about three days. 


The stock will likely bounce back as investors buy the dip and as the talk of last week’s outage fade. Indeed, Google Trends data shows that the number of CrowdStrike searches has fallen in the past few days. Therefore, the stock could bounce back as investors eye the resistance at $336, its lowest point on Thursday.


The key date to watch will be on August 29th when the company publishes its financial results.


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HypeIndex is an AI platform that detects Hype in stocks and cryptos before it moves the market, providing reliable early detection for profitable investment opportunities.

The algorithm for our proprietary HypeIndex score is based on sentiment analysis, data science and machine learning.

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