Stock Analysis
In this comprehensive breakdown, we assess the strengths and weaknesses of three cybersecurity stocks: CrowdStrike (CRWD), Palo Alto Networks (NASDAQ:PANW), and SentinelOne (NYSE:S).
The two stocks that stand out as compelling options for a more fervent investment are Palo Alto Networks and SentinelOne. Why not CrowdStrike? Well, I run a very concentrated portfolio, and two cybersecurity stocks provide ample exposure to this sector.
However, across this analysis, it is essential to highlight that the cybersecurity sector, as a whole, is a promising prospect for investors. Ultimately, it comes down to individual preferences.
Palo Alto is a stalwart, CrowdStrike is delivering outstanding performance, and SentinelOne, while still unproven in its underlying profitability, is attractively priced, given the assumptions. Moreover, relative to its market capitalization, SentinelOne’s debt-free balance sheet is the most appealing among its peers.
We have much ground to cover, so let’s delve right in.
Recapping the Journey
Back in August, my bullish coverage of CrowdStrike acknowledged some lingering uncertainty about whether it could truly shine against towering expectations. However, the company has since proven itself by achieving highly profitable status. Consequently, I upgraded my call on the stock from neutral to bullish in early 2023, and the performance has lived up to expectations.
Why CrowdStrike? Why Now?
CrowdStrike’s flagship product, the Falcon platform, leverages advanced technologies like artificial intelligence to detect and halt cyber threats in real time.
The company aids organizations in securing their computer systems, networks, and data with a comprehensive suite of cybersecurity solutions, safeguarding against various attacks, including malware and ransomware. Essentially, CrowdStrike’s mission is to prevent breaches from cyber threats.
In the near term, CrowdStrike demonstrates robust prospects, fueled by its impressive fiscal Q3 2024 performance. Achieving the $3 billion ARR milestone, marking a 35% year-over-year growth, sets CrowdStrike apart as the only pure-play cybersecurity software vendor to reach this milestone.
With an accelerating net new ARR of $223 million and a focus on innovation, including the introduction of the Falcon Platform Raptor release and strategic acquisitions like Bionic, CrowdStrike is well-positioned for continued growth. Awards and accolades, coupled with successful expansions in cloud security, identity threat protection, and next-gen SIEM offerings, underscore CrowdStrike’s dominance in the cybersecurity space. The company’s commitment to a single-built-by-design platform instills confidence in its ability to reach the outlined goal of $10 billion in ARR over the next 5 to 7 years.
However, one key challenge facing CrowdStrike centers around balancing aggressive investments in innovation driving top-line growth while maximizing free cash flow. The aim to reach approximately 36% free cash flow margins over the next 3 to 5 years is a noteworthy aspiration, given its growth trajectory.
Revenue Growth Projections
Fiscal year end for CRWD is January 2024, so when referring to fiscal 2025, it essentially means this calendar year, adjusted by a month.
CrowdStrike is expected to conclude fiscal Q4 2024 with approximately 33% year-over-year growth rates, if not slightly higher. The takeaway is that there is a high likelihood that in fiscal 2025, CrowdStrike will deliver another year of over 30% compound annual growth rate (CAGR).
From a street perspective, the expectations hover around 30% CAGR as well. Notably, these figures generally start conservatively, leaving room for upward revisions as the company progresses. Overall, CrowdStrike is expected to generate close to $4 billion in revenues next year, a substantial figure for a company growing at a 30% CAGR.
