CrowdStrike Holdings: +53.0%
CrowdStrike Holdings was the top performer in our 2023 top 10 global stock picks with 53.0% returns, outperforming benchmarks Nasdaq and S&P 500 which returned 20.6% and 10.5% respectively. Despite the significant jump in share price, based on our updated in-house valuations, we think the company’s current price of US$155.14 ($208.48) is significantly lower than its intrinsic value, which is around 60% above the trading price. Time and again, companies which exhibit strong and consistent cash-flow-generating ability are highly likely to be good quality businesses.
To recap, CrowdStrike is a leading company in the cloud security space that provides cybersecurity services and solutions covering multiple large security markets including corporate workload security and threat intelligence services. CrowdStrike is a leader in the cloud-delivered protection of endpoints, cloud workloads, identity and data. The company differentiates itself from competitors by offering cheaper, simpler and more effective cloud security products and solutions.
Technology-related companies that thrive are the ones that constantly innovate the right products and solutions, and AI is one key theme for companies to invest in and develop. CrowdStrike is at the forefront of AI-led innovation in cybersecurity and has come a long way in developing its latest generative AI by leveraging the network effect of crowdsourced data. The company’s cloud-scale AI gets smarter as it consumes more data, enabling better and more comprehensive cybersecurity solutions and offerings.
CrowdStrike’s rapidly expanding customer base is a testament to the quality of its offerings, as subscription-based customers which provide recurring revenue to the company increased 41% y-o-y for FY2022 ended January 2022. Furthermore, subscription customers with multiple cloud module subscriptions as at the latest financial period have increased to over 60% for those with five or more modules, 40% to six or more modules, and over 20% for seven or more modules, implying better and growing customer retention rates.
In terms of business opportunity, the company’s total addressable market is expected to grow at a rate of 13% CAGR over the next two years to US$97.8 billion, and to US$158 billion over the next three years including planned offerings, implying a huge businesses opportunity for growth. For the company’s most recent 1QFY2023, revenue increased 42% y-o-y, while non-GAAP operating income rose 39.6%. Cash flow was as consistent as ever while operating cash flow and free cash flow were up 40.0% and 41.2% respectively over the same period.
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In terms of financial safety, CrowdStrike’s current ratio is 1.7 times, reflecting strong liquidity. Solvency should not be an issue for the company as it is net cash. The company’s target operating model over the upcoming financial periods is to keep operating margins over 20%, free cash flow margins over 30%, and subscription gross margins over 77%.
The stock has 43 “buy” calls, six “hold” calls, and no “sell” calls, with a consensus target price of around 15% above its current trading price.
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Disclaimer: This is a virtual portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy or sell stocks, including the stocks mentioned herein. This portfolio does not take into account the investor’s financial situation, investment objectives, investment horizon, risk profile, risk tolerance and preferences. Any personal investments should be done at the investor’s own discretion and/ or after consulting licensed investment professionals, at their own risk.
Data for Charts & Tables were sourced from Bloomberg; Stock returns include capital adjustments and dividends, and excludes currency exchange fluctuations.
