Performance: -8.4%
Nasdaq-listed CrowdStrike Holdings was among the losers in our portfolio for the four-month period, with an 8.4% loss. The company is a leader in the cloud security space that provides endpoint security, threat intelligence, workload protection, and cyber attack response services. CrowdStrike offers its cybersecurity services primarily through its Falcon platform, which leverages the network effect of crowdsourced data.
The case for the company remains from the previous year, as it is the leader in a niche industry with great growth potential. CrowdStrike’s focus on the network effect by offering scalable, subscription-based products and solutions is strategic as companies in the cloud industry are dependent on the network effect for the growth in value of their businesses. Further, CrowdStrike’s cloud-scale artificial intelligence, which gets smarter as it consumes more data, is expected to strengthen the company’s moat over competitors, given that the company covers a wide range of clients. Even if there is a slowdown in the economy, CrowdStrike is expected to benefit because companies are expected to simplify their operations, and their offerings are well suited for this event.
From the company’s latest results, its subscription-based customer base continued to improve rapidly. The rapid growth of subscription annual recurring revenue, along with strong customer retention and expansion over the benchmark also contributed positively to the company’s performance over the financial period. Improving gross margins and operating leverage are also indications that the company is performing well. The total addressable market for CrowdStrike also continues to expand, with a double-digit CAGR expected over the next two years. Also, the company’s free cash flow margin of over 30% is expected to be maintained over the next few periods.
When it comes to financial safety, the company’s balance sheet is strong, with a current ratio of 1.8 times and a net cash position. Given its strong cash flow generating ability, solvency and liquidity should not be a problem for the company in the upcoming financial periods.
Sentiments-wise, there are 30 “buy” calls, and no “hold” or “sell” calls on the company from analysts. The average target price for the company is more than 40% above its current trading price of US$163.9 ($227.70). Based on our in-house valuations, we think the company’s fair valuation is at least 50% above its current trading price. Demand for cloud-based services will increase, and we think companies such as CrowdStrike, which are at the forefront of the security niche, will be one of the bigger names in the tech space through market cap growth over the next few years, hence is a great buy at current prices.
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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.
