In This Article:
CrowdStrike CRWD is currently trading at a high price-to-sales (P/S) multiple, far above the Zacks Security industry. CrowdStrike’s forward 12-month P/S ratio sits at 18.65X, significantly higher than the Zacks Security industry’s forward 12-month P/S ratio of 12.53X.
CrowdStrike Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
CrowdStrike stock has also remained highly volatile due to several macroeconomic and business-related factors. However, CRWD stock has outperformed the Zacks Security industry in the past six months.
CrowdStrike Six-Month Performance Chart
Image Source: Zacks Investment Research
The real question for investors is whether CrowdStrike's high valuation justifies holding the stock amid its current volatility, or it's time to sell the stock.
Key Challenges Faced by CrowdStrike
CrowdStrike is facing several challenges related to customers’ negative sentiments since the global IT outage incident on July 19, 2024. The company has been implementing the Customer Commitment Package to retain its customers, which includes product additions and discounts, hence compressing its revenue recognition and profitability.
Despite all these measures, the company’s upsell into existing customers showed signs of slowdown and the churn rate remained moderate. Moreover, a report by Bloomberg reported that CrowdStrike is currently under federal investigation by the U.S. Department of Justice and the Securities and Exchange Commission (SEC) over a $32 million deal with Carahsoft Technology.
The deal, meant to supply cybersecurity tools to the IRS, was reportedly never fulfilled, raising concerns of financial irregularities. Authorities are examining whether CrowdStrike engaged in pre-booking or channel stuffing to inflate financial results, while CRWD maintains that it handled the transaction appropriately.
The ongoing investigation creates legal and reputational risks, softening investors’ confidence. While CrowdStrike maintains that it handled the transaction appropriately, the ongoing investigation creates legal and reputational risks, softening investors’ confidence.
CrowdStrike Faces Competitive Pressure
Amid customer backlash and ongoing regulatory scrutiny that could damage CrowdStrike’s reputation, competitors may seize the opportunity to attract and convert its customer base. The cybersecurity space already contains players like Palo Alto Networks PANW, SentinelOne S and Cisco CSCO, who provide similar products like CrowdStrike.
For instance, CrowdStrike’s Falcon Extended Detection and Response that connects multiple layers, including email, endpoints, servers, cloud workloads, and network, to provide a comprehensive security competes with SentinelOne’s Singularity platform, which provides AI-powered endpoint protection and XDR. SentinelOne also offers Autonomous threat hunting and remediation like CRWD.