CrowdStrike (NASDAQ: CRWD) is under scrutiny by some investors for its failure that occurred on July 19 when it pushed an update that crashed millions of devices. The stock heavily sold off following that event, but the damage caused by that incident did not affect its business much.
Due to the impact of the event, the stock is on sale, so it may be time to add some CrowdStrike shares. I think there are 10 billion reasons why this could be a good idea, as cybersecurity has never been more important.
CrowdStrike's platform is highly integrated
CrowdStrike is a leader in the cybersecurity space. Its platform helps protect against external threats by securing network endpoints. This keeps internal servers safe, preventing malicious takeovers or data theft. Endpoint protection is just one part of CrowdStrike's offering. It also has cloud protection, threat intelligence, and identity protection tools. In total, CrowdStrike's platform has 28 modules that customers can select to provide different levels of protection.
With 65% of customers using at least five modules, CrowdStrike is deeply integrated throughout its client's security strategy. This is why CrowdStrike didn't suffer as great of a fallout as some feared; it's a difficult software to live without.
CrowdStrike's software is the best in class in multiple categories, and even though it had one failure, it didn't crash the entire business.
CrowdStrike's FY 2025 growth figures were hardly affected by the outage
Although the attack didn't occur until the very end of CrowdStrike's second quarter of FY 2025 (ending July 31), if it had had a massive effect, it would have shown up in CrowdStrike's third quarter and full-year outlook. For Q3, CrowdStrike expected about $982 million in revenue, up 25% from a year ago. That's a slight slowdown compared to Q2's 32% growth but not enough to send every investor running for the exit.
For FY 2025, CrowdStrike's management decreased its guidance from what it stated in Q1. In the first quarter, it issued guidance for $3.99 billion for FY 2025. That figure was updated in Q2 by management to reflect some of the difficulties it was seeing, but it only dropped to $3.90 billion.
This shows that CrowdStrike escaped from this incident relatively unharmed, giving investors the green light to look at purchasing more. If CrowdStrike can hit management's long-term targets, the stock could be a bargain right now.
CrowdStrike can still be a market-beating stock
In its Q1 FY 2025 earnings call, CEO and co-founder George Kurtz discussed CrowdStrike's vision to reach an annual recurring revenue of $10 billion in five to seven years. That represents massive growth, but considering that cybersecurity has never been more important, it's not as outlandish as some may think.
But what would that do for the stock?
Let's take the conservative estimate and say CrowdStrike reaches $10 billion in annual recurring revenue in seven years. If it can do that and achieve a profit margin of 30% (a very reasonable level to expect for a software company), CrowdStrike will produce annual earnings of $3 billion.
At today's $65.5 billion valuation, CrowdStrike's stock would be valued at around 22 times trailing earnings seven years from now. The industry standard in the software space is Adobe, which has historically traded for nearly 50 times trailing earnings.
So, if CrowdStrike meets those targets in seven years, the stock would achieve a historically normal valuation and have a compound annual growth rate of 12.4%. That was over seven years, the long end of the estimate. If it does it quicker than that, CrowdStrike could achieve an even higher rate of return, giving investors 10 billion good reasons to buy the stock.
With that figure higher than the market's long-term average return, CrowdStrike looks like a strong long-term buy, even if it is a bit expensive at present.
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Keithen Drury has positions in Adobe and CrowdStrike. The Motley Fool has positions in and recommends Adobe and CrowdStrike. The Motley Fool has a disclosure policy.
10 Billion Reasons Why CrowdStrike Is a Buy Right Now was originally published by The Motley Fool