A new year is approaching, so it might be a good time to consider new opportunities.
CrowdStrike (CRWD -0.47%) developed a cybersecurity platform designed to protect every layer of a business, and it uses artificial intelligence (AI) to automate everything from threat hunting to incident response.
The company initiated a cascading incident on July 19 when it released a corrupted software update to customers that crashed millions of computers used by thousands of businesses worldwide. The incident was resolved within a day or so, but CrowdStrike stock quickly plunged 44% as investors feared it would result in a customer exodus. The stock price has now almost fully recovered because the fallout from the event wasn’t as bad as expected.
The company just raised its revenue forecast for its current fiscal year. That could be a sign of positive things to come in 2025, so here’s why investors might want to buy the stock as part of their New Year’s resolution.
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A one-stop cybersecurity shop for every enterprise
The cybersecurity industry has a history of fragmentation, meaning businesses would typically piece together their security stack from several different vendors. CrowdStrike’s Falcon platform is a true all-in-one solution, with 28 different modules covering cloud security, identity protection, endpoint security, and more.
Falcon offers both convenience and cost savings. That’s why CrowdStrike’s July 19 outage — which disrupted 8.5 million computers worldwide and cost some of its top customers over $5 billion — is unlikely to have a lasting impact on its business. Falcon simply delivers too much value.
During the company’s fiscal 2025 third quarter (ended Oct. 31), a record-high 66% of customers were using at least five Falcon modules. CrowdStrike management said it was the biggest quarter ever for the sector of its sales department that handles organizations with under 2,500 employees.
The new Falcon Flex product, which was launched in 2023, has been a big part of the company’s recent success. It provides businesses with flexible subscriptions that allow them to distribute spending to different Falcon modules at different times, depending on their needs. It means they can try new products whenever they are released, without having to negotiate a separate contract that locks them in.
The average Flex customer has tried more than nine modules, so it’s a great way for CrowdStrike to entice existing customers to increase their spending over time.
Falcon aims to automate as many cybersecurity workloads as possible, so it can operate silently in the background of a customer’s networks and endpoints. AI is the secret to achieving that goal. CrowdStrike’s AI models are trained on more than 2 trillion security events every day, so they are constantly becoming more accurate to deliver the best protection.
CrowdStrike just increased its revenue forecast
CrowdStrike generated $1 billion in total revenue during the third quarter, which was a 29% increase from the year-ago period. It was also the first time its quarterly revenue crossed the billion-dollar mark.
When the company released its financial results for the fiscal 2025 second quarter (ended July 31), which was shortly after the July 19 incident, it reduced its revenue forecast for the fiscal 2025 full year from $4 billion down to $3.9 billion at the high end of their respective ranges.
That wasn’t a big change given the magnitude of the outage, and CEO George Kurtz remained confident that most of the deals in the company’s sales pipeline would eventually close. It appears he was right, because when CrowdStrike released its recent third-quarter results, it revised its fiscal 2025 revenue back up to $3.93 billion at the high end of the range.
That forecast is still down from $4 billion, but it’s a sign that any issues from the outage will probably be short-lived. While CrowdStrike does expect to suffer weaker free cash flow in the upcoming fourth quarter due to costs relating to the outage, the company reiterated its long-term goal to reach $10 billion in annual recurring revenue (ARR) by fiscal 2031.
That would be a 150% increase from its current ARR of $4 billion.
Why the stock is a buy now
CrowdStrike stock is currently trading just 11% below its all-time high. It isn’t cheap right now because its price-to-sales ratio (P/S) of 23.1 is a 40% premium to the P/S of its largest competitor Palo Alto Networks (PANW 0.90%):
CRWD PS Ratio data by YCharts.
With that said, CrowdStrike’s 29% revenue growth during the third quarter was more than double Palo Alto’s 14% revenue growth in its recent quarter, so CrowdStrike does deserve a premium valuation. Plus, if we assume the company achieves its goal to reach $10 billion in ARR by fiscal 2031, that places its stock at a forward P/S of just 8.7.
In theory, that means CrowdStrike stock will have to soar 165% over the next six years just to maintain its current P/S of 23.1. That would be a great potential return for its shareholders, but it might also be conservative.
That’s because management values its addressable market at $116 billion today and expects it to grow to $250 billion over the next few years. So, an ARR of $10 billion would still represent a fraction of the company’s opportunity.
Investors who are looking to add new stocks to their portfolio ahead of the new year should definitely consider CrowdStrike. However, the best rewards will probably come to those who hold the stock well beyond 2025.
