Is It Time To Strike on CrowdStrike as a Secure Momentum Play?

Key Points

• Expectations are high for CrowdStrike heading into the next earnings call with Wall Street anticipating similar YoY revenue and EPS growth.
• The company announced a plan last month to acquire software company Bionic, which could be a differentiator in the highly competitive enterprise cybersecurity market.
• Analyst sentiment on the stock is overwhelmingly bullish with a whopping 19 out of 20 sell-side research firms currently at buy ratings.

When it comes to the momentum investment strategy, CrowdStrike Holdings, Inc. NASDAQ: CRWD checks many of the boxes.

From a technical perspective, the cybersecurity play boasts a 70 relative strength indicator (RSI) reading on the weekly chart. The moving average convergence divergence (MACD) indicator is also off the charts and Friday’s candlestick is perched comfortably above both the 50-day and 200-day moving averages.

In terms of traditional momentum measures, CrowdStrike has a lot going for it as well. Earnings per share (EPS) revisions are trending higher, trading volume is solid and relative performance is excellent. Year-to-date, the stock is up 73%, more than twice the return of the Nasdaq-100.

Too hot to touch? Maybe not. 

CrowdStrike finished last week on a rough two-day slide from $191.99 to $178.76 as a broad market selloff finally struck one of this year’s biggest winners. Given the stock’s ability to bounce back, the dip may be an opportunity.

That’s because the primary driving force in the CrowdStrike rally has been strong financial results in a weak economic environment. Through the first half of its fiscal year (ended July 31st), revenue and EPS were up 39% and 96%, respectively. The growth shows that the enterprise information technology (IT) spending slowdown doesn’t apply to everyone.  

In recognition of the weak demand environment, CrowdStrike has been positioning itself as a robust yet budget-friendly cybersecurity solution. The company’s cloud-based software is being consolidated onto its Falcon security platform, allowing customers to access the modules they need in one place and avoid expensive ‘a la carte’ pricing. The cost savings angle is helping enterprises overcome spending worries and making CrowdStrike subscriptions a winning proposition.

Given how well the company has done, expectations are high heading into the next earnings call, which will likely be in late November or early December. Wall Street is anticipating similar year-over-year revenue and EPS growth.

Fortunately for CrowdStrike, last week’s climb to a fresh 52-week high is about more than a strong income statement. 

What Else Is Driving CrowdStrike’s Momentum?

Besides the quarterly results, the buying interest stems from steady news flow. Astutely striking while the iron’s hot, CrowdStrike has been a press release machine this year — which has helped maintain investor interest in the stock. 

One of the biggest headlines occurred last month when CrowdStrike announced a plan to acquire Bionic, a workload observability software company. Bionic provides visibility into cloud application behavior and vulnerability, informing businesses of their biggest risks during app development. The planned integration of Bionic’s capabilities into the Falcon platform could be a differentiator in the highly competitive enterprise cybersecurity market. 

The acquisition follows Crowdstrike’s summer rollout of Charlotte AI, an artificial intelligence assistant that’s also part of Falcon. Charlotte not only adds to the platform’s value proposition as a way to remediate cyber threats but could also ‘democratize’ the cybersecurity field by letting nonexperts submit AI queries and receive actionable cyberattack insights.

On Thursday, independent research group Forrester named CrowdStrike a leader in endpoint security after it ranked the highest among 13 software vendors. The nod is likely to add to the company’s marketing muscle as it sells to enterprises weary of the growing threat of cybersecurity breaches.

Does CrowdStrike Stock Have More Upside?

After crushing the fiscal 2024 Q2 consensus EPS estimate, CrowdStrike’s valuation has soared to 63x this year’s earnings. This seems rich but is roughly on par with the software industry average. Better yet, CRWD has historically traded at multiples 30% to 40% above its peer average, a premium it deserves because of its stronger growth profile. This suggests that the stock could run at least another 30%.

So too does the overwhelmingly bullish analyst sentiment. A whopping 19 out of 20 sell-side research firms currently have buy ratings on CrowdStrike despite its big 2023 advance. Although their average price target ($189) implies about 15% upside, several firms have price targets of $200 or more. Last week, J.P. Morgan reiterated its bullish stance and gave CRWD a $200 target. 

If CrowdStrike can ride the momentum to $200, a trip to $300 may be next. Two years ago, it came within $1.52 of hitting $300 before falling below $100 earlier this year. 

It’s been (almost) all uphill since. The cybersecurity leader is one week away from notching a five-month winning streak — for the first time since its epic run toward $300.