CrowdStrike (CRWD) stock has remained in a deep bear market after going through a major global outage last month. It has crashed by over 34.50% from its highest level last month, meaning that it has underperformed other tech companies as the Nasdaq 100 index is slowly nearing its all-time high.
Short-term headwinds
CrowdStrike shares have remained under pressure as investors react to an outage that affected companies from around the world.
The biggest risk is that the company has now been sued by Delta, which claims that it lost $500 million during that outage. Delta, has itself been sued by customers for refund refusals during the outage.
It is still unclear whether more companies will sue CrowdStrike but chances are that they will not. For one, chances are that CrowdStrike has an outage clause in the terms and conditions that customers sign. The other potential outcome is where the two companies settle out of court.
As I wrote when the crisis emerged, the main probability is that CrowdStrike would attract some negative headlines and then go back to normal. A good example of this is Boeing, which went through a prolonged period of negative headlines following the Ethiopian Airlines crash in March 2019.
At the time, Boeing stock tumbled from a high of $435 to a low of $88.32 in March 2020. While the company remained under scrutiny, its stock rose to $278 in 2021 and to $267 earlier this year before this year’s crises.
Other tech companies like Facebook, Amazon Web Services, Google, Cloudflare, and Slack have fone through major outages in the past. Because of their market share, most of these companies have done well over time.
This performance explains why most Wall Street analysts have maintained their optimistic view on CrowdStrike. BMO Capital has an outperform rating while Goldman Sachs, Morgan Stanley, Citigroup, and DA Davidson have maintained their bullish view.
CrowdStrike has grown rapidly over the years
CrowdStrike’s business has been doing well for a long time, helped by the rising demand for cloud security. Its financial results shows that its annual revenue rose from over $481 million in 2020 to over $3 billion in 2023. This means that its revenue rose by over 500% in five years.
This growth has happened as the company has continued adding big companies as clients. Some of the most notable clients are Amazon, Goldman Sachs, Hyatt Hotels, Rackspace, and Humana.
It also provides its solutions to many smaller companies. One reason why the recent outage will have a minor impact on its sales is that these clients will not want to move to another provider because of the costs involved. Also, those other providers may go through a similar bug in the future.
The most recent results showed that CrowdStrike’s revenue growth continued in its first quarter. Revenue rose by 33% to $3.65 billion while its free cash flow rose by 35% to $322 million.
CRWD earnings ahead
Therefore, the next important CrowdStrike stock price catalyst will be its financial results, which are scheduled on August 28.
These numbers will be important because they will let the management talk about the impact of the outage on business flow.
In the last earnings, the management guided to Q2 revenue figures of between $958 million and $961.2 million. The average estimate among analysts is that its revenue will come in at $957 million.
Also, analysts expect that the earnings per share will be 97 cents, up from 99 cents a year earlier. CrowdStrike has a long history of beating analyst estimates as it has done that in the last consecutive quarters. The company also tends to be highly conservative when it issues its guidance.
As part of its guidance, the company expects that its revenue this year will be between $3.97 billion and $4.01 billion. Its net income is expected to be between $890 million and $916 million.
The main concern about CrowdStrike and other cybersecurity companies is that, while they are growing, their valuations have become stretched in the past few years. A good example of this is Wiz, a cybersecurity company started in 2020 that was in talks to be acquired by Google for $23 billion.
CrowdStrike also has higher valuation multiples, with its forward P/E ratio of 65.36, higher than Nvidia’s 47.
Read more: Do valuations still matter as Nvidia, Shopify, SMCI, CRWD stocks surge?
CrowdStrike stock price analysis
Turning to the weekly chart, we see that the CRWD share price peaked at $397 in July and then crashed hard after the outage. It retreated and reached a low of $201.52 and has now bounced back to $260. It has also remained below the 50-week and 25-week moving averages.
On the positive side, it seems to be forming the handle section of the cup and handle chart pattern. Therefore, there is a likelihood that it will continue rising as buyers target the key resistance point at $298, the upper side of the cup. A break above that level will lead to more gains.
The risk, however, is that this rebound is just a dead cat bounce, meaning that it could lead to more downside. Besides, stocks tends to be highly volatile ahead of earnings.
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