The cybersecurity industry has endured several headwinds over the past few months. As growth rates slowed, some companies lowered their guidance. Investors witnessed a shocking turn of events for companies like Palo Alto Networks (NASDAQ:PANW) and Fortinet (NASDAQ:FTNT), still suffering from labor pains. Depending on the context, CrowdStrike (NASDAQ:CRWD) continued its impressive growth. CrowdStrike has a long history of rewarding shareholders, and that is likely to continue.
That's because the company continues to gain market share even in a slowing cycle for most cybersecurity companies. I'm bullish on CrowdStrike. That's because CrowdStrike has established itself in a lucrative industry, and because the company is an outlier.
The importance of cyber security
The rise of online hackers has made cybersecurity software necessary. Cybercriminals can earn large sums of money by infiltrating databases and obtaining sensitive information. Some information is used as blackmail and facilitates ransomware attacks, while other hackers sell people's data on the dark web.
A breach can cost a company millions of dollars and erode customer trust. Many businesses and small businesses don't want to take that risk, so they pay for cybersecurity solutions instead.
Long-term industry growth remains strong. The cybersecurity market is projected to grow at a compound annual growth rate of 12.3% from 2023 to 2030. grand view research. Some cybersecurity companies grow faster than others, and CrowdStrike looks like one that will outperform its competitors.
Revenue growth remains strong
CrowdStrike meets the requirements of high earnings growth, which is the hallmark of any growth stock. The company closed the fourth quarter of fiscal 2024 (ending January 31) with 33% year-over-year sales growth. This growth matched the company's full-year revenue growth rate of 36% year-over-year.
CrowdStrike's annual recurring revenue model makes it easier for the company to build on its success. The company currently generates $3.44 billion in annual recurring revenue, an increase of 34% year over year. Additionally, the company increased its new ARR by $282 million, an improvement of 27% year-over-year.
The cybersecurity giant has several ways to unlock further value. If CrowdStrike increases its prices, its existing customer base could increase its annual recurring revenue. Some customers may also upgrade their plans to protect more data. Even without price increases, the company is in a good position to acquire new customers.
Profit margins are rising
Another interesting development is the company's rising profit margins. CrowdStrike's GAAP net income attributable to this business was $53.7 million in the fourth quarter of fiscal 2024, compared to his net loss of $47.5 million in the same period last year.
This significant turnaround resulted in a net profit margin of 6.35%. CrowdStrike's net profit margin for the third quarter of 2024 was 3.39%, while its net profit margin for the second quarter of 2024 was 1.16%. CrowdStrike's net profit margin for the first quarter of 2024 was also 0.07%.
Therefore, CrowdStrike's margins rose from 0.07% to 6.35% in just a few quarters. With this momentum, the company could report double-digit net profit margins in coming quarters.
Cybersecurity companies need higher profit margins as stock valuation is the company's main weakness. The company's P/E ratio is hovering around 900, but the forward P/E ratio is 84 times.
Investing in CrowdStrike requires a long-term outlook thanks to its valuation. The underlying business is strong and rising earnings could lead to a more attractive valuation.
Guidelines for sustaining growth
CrowdStrike has announced its revenue guidance for the first quarter of 2025 and the full year of fiscal 2025. At the midpoint, the company projects fiscal 2025 first quarter revenue of $904 million and fiscal 2025 revenue of $3.957 billion. These metrics represent year-over-year revenue growth of 30.5% and 29.3%, respectively.
These growth rates have slowed slightly compared to last year. However, this guidance comes at a time when many cybersecurity companies are suggesting that they will only be able to achieve high-single-digit or low-double-digit revenue growth year-over-year. CrowdStrike has the potential to further expand its net profit margins while achieving impressive growth.
Is CRWD stock a buy, according to analysts?
CrowdStrike is rated a Strong Buy among 41 analysts, based on 39 Buy ratings and 2 Hold ratings. CRWD's average price target of $394.36 suggests the stock could move up an additional 23.2%. The highest price target of $435 per share implies 36% upside from current levels.
CrowdStrike Stock Conclusion
CrowdStrike delivers strong financial growth and profit growth in an industry expected to grow at 12.3% annually from 2023 to 2030. While other cybersecurity companies are reporting lower growth rates and reducing guidance, CrowdStrike continues to grow, leading to continued strength. The company's annual recurring revenue model is an excellent foundation for long-term success.
CrowdStrike is one of the top cybersecurity stocks on the stock market. Its 140% growth over the past year has outpaced the leading cybersecurity companies. The only weakness in the stock is its current valuation, but expanding its net profit margin could address concerns for long-term investors.
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