Will CrowdStrike Extend Its Streak Of Topping Earnings Views?

Cybersecurity stocks have been on the rise in recent weeks, as companies like CrowdStrike Holdings NASDAQ: CRWD rally from previous lows.

CrowdStrike specializes in cloud-based protection for enterprise customers. It offers intelligence about various cyber threats, and also provides security and info-tech operations management services, mostly on a subscription basis. 

CrowdStrike key player in endpoint security, the term for the protection of computer networks that are remotely connected to other devices. With more professionals working from home on company networks, endpoint security has become even more important in the past two years. 

Meanwhile, hackers and others with ill intentions are upping their games, another reason cybersecurity is high on the list of items corporations need to invest in. 

The stock is up 43.67% in the past three months, from a low of $130 on May 12. Shares closed Monday at $201.82, a gain of $0.95 over Friday. 

On CrowdStrike’s chart, a trendline shows near-term potential for a rally to around $215. In addition, over the next 12 to 18 months, analysts have a price target of $247.32, according to MarketBeat ratings data. That’s a potential upside of 22.58%. Wall Street’s consensus rating is “buy.” 

Rolling Out New Services

Last week, the company unveiled artificial intelligence-powered Indicators of Attack, delivered on the CrowdStrike Falcon platform and powered by the CrowdStrike Security Cloud. According to the company, “these new detection and response capabilities stop emerging attack techniques and enable organizations to optimize the threat detection and response lifecycle with speed, scale and accuracy.”

CrowdStrike reports its second quarter on August 30 after the market’s close. Analysts are eyeing a loss of $0.17 per share on revenue of $515.45 million. 

However, non-GAAP income per share in recent quarters has come in on the positive side, resulting in triple-digit year-over-year earnings growth in each of the past eight quarters. Revenue increased at double-digit rates during that time.

MarketBeat earnings data reveal that CrowdStrike beat earnings and revenue expectations in every quarter since September 2019. 

It often helps a stock if there’s strength throughout its industry, as that widespread potential attracts broad investment. Companies with similar or related services, or with similar customer bases, often move in tandem as capital flows into the industry as a whole. 

For example, in the case of CrowdStrike, fellow large-cap cybersecurity stocks in rally mode include Palo Alto Networks NASDAQ: PANW and Fortinet NASDAQ: FTNT.

Palo Alto Networks specializes in firewall protection. It’s also in the business of cloud security. The stock advanced 10.11% in the past three months, and is still consolidating - meaning investors may not have missed the next big rally - at least in the near-to-medium term. 

The company is due to report its fiscal fourth quarter on August 22, with analysts expecting earnings per share of $2.28 on revenue of $1.54 billion. If met, those would mark year-over-year gains on both the top and bottom lines. 

MarketBeat earnings data for Palo Alto Networks show that the company missed bottom-line views in the past two quarters. 

Not Beating Views By Enough

Another large-cap Internet security company, Fortinet, has been correcting since January. It’s only advanced 1.80% in the past three months, but has rebounded 1.69% in the past week, following a gap lower after its August 3 report. 

While second-quarter earnings and sales topped analysts’ views, revenue guidance for the current quarter came in lower than expectations. In addition, illustrating the “priced to perfection” phenomenon that often occurs with growth stocks, Wall Street was disappointed with the degree of this past quarter’s earnings and revenue beats.

Yes, you read that right. Although the company exceeded expectations, it wasn’t by a significant enough margin, when compared to the size of the beats in prior quarters. 

However, MarketBeat analyst data for Fortinet show that Wall Street is maintaining a price target of $72.16 on the stock, a potential upside of 33.43%. Analysts rate the stock as a “moderate buy.”

Clearly, given the various trends, including work-from-home and increased threats, cybersecurity will remain a growing business. However, if you are considering adding a cybersecurity stock to your portfolio, make sure it’s rallying from previous lows, that the business case is strong and that the big institutional investors, such as mutual funds, continue to support the stock with increased buying.