The Crowdstrike Stock Market Reversal Is Underway
Crowdstrike (NASDAQ: CRWD) sparked a round of analysis chatter with its Q4 earnings report and the chatter is mixed. That said, there is one clear takeaway from the report and the analyst's commentary and that is this stock is undervalued. While 4 of the 10 analysts who made comments post-release lowered their price targets the new targets are in-line with the consensus and the other 6 commentaries were bullish. Among them are 2 upgrades, both to Buy equivalent from Neutral equivalents, and 4 price target upgrades that have the stock trading well above the consensus figures. As for the Pricetargets.com consensus figures? The market is rating this stock a firm buy with a price target of $261.50. That’s 36% above recent price action with shares trading near $196 and we think the consensus could move higher over the course of the year.
There are three key takeaways from the analyst's chatter. The first is that this company is in the early phases of growth, the second that non-core businesses are driving above-expectation growth, and that the company is on track to switch from a mere cloud-based security service to a full-service platform for providing security needs.
Crowdstrike Exceeds Expectations With Business Acceleration
Crowdstrike is in the midst of a business acceleration that is only getting stronger with the Russia-Ukraine conflict in focus. The conflict is spurring businesses to adopt new security technology at a faster rate and will be an influence on business this year. Regardless, the company reported $431 million in revenue for a gain of 62.7% over last year and beat the consensus by 450 basis points.
The strength is driven by the 2nd consecutive quarter of net-new ARR and quarter-ending ARR up 65%. ARR is on track to top $2 billion within the next few quarters and is driving record cash flow and FCF. Moving down to the earnings, the company’s margins are holding up despite increasing cost pressure in the form of wages. The adjusted EPS of $0.31 is more than double last year’s take and beat the consensus by $0.11 or 58%.
Turning to the guidance, the guidance is strong and we see upside risk in the numbers as well. The company is calling for Q1 revenue of $458 million at the low-end of the range compared to the $440 million Pricetarget.com consensus with EPS and the full-year outlook similarly strong. In our view, businesses should expect cyberattacks to continue and become more sophisticated if not increase in volume. Either way, that trend will drive business for Crowdstrike and the entire cybersecurity industry.
The Technical Outlook: Crowdstrike Is In Reversal
Price action in Crowdstrike shares is moving higher following the Q2 release and has the stock in a reversal. The question, however, is if this reversal is from down to sideways or down to up and we think it might be down to sideways simply due to the valuation. The stock is trading about 140X its earnings outlook which is great for a growth company but not great given the current market conditions. In that light, a move sideways within the $160 to $200 range is expected with a chance of breaking out of the range and moving higher. A break above $200 would confirm a fuller reversal and may lead the stock back up to the $240 and $260 levels where strong resistance is expected.
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