I can see why investors might believe the rally in CrowdStrike (NASDAQ:CRWD) is over. CRWD stock has gained 258% from March lows, and more than doubled so far this year. After that explosion higher, shares trade at a whopping 42x revenue.
That multiple is one of the highest in the market. Among nearly 700 large-cap stocks, and excluding biotechs, there are only a handful with steeper valuations relative to sales. Among them are the market’s best stories: Zoom Video (NASDAQ:ZM), Shopify (NYSE:SHOP) and Fastly (NYSE:FSLY).
But here’s the thing: the CrowdStrike story can go toe-to-toe with any of the market’s best.
And like Shopify and Zoom, the company will benefit from secular changes that will help accelerate its growth.
To be sure, investors have come around to the story. The rally in CRWD stock has to slow, almost by definition. But I don’t believe that rally is over yet.
A few years ago, it seemed like the cybersecurity sector was going to be the source of huge investor returns. As more activity moved online, demand would rise, and so would share prices in the group.
That case didn’t entirely play out, however. Coming into 2020, the ETFMG Prime Cyber Security ETF (NYSEARCA:HACK) sat only modestly above where it did in the middle of 2018. Widely held stocks like FireEye (NASDAQ:FEYE) and Palo Alto Networks (NYSE:PANW) saw similar trading.
But we’re set to see the long-running bull case play out. Demand in the sector is going to skyrocket going forward.
After all, one of the unfortunate aspects of any tragedy is that unsavory characters try to take advantage. We even saw such behavior after the attacks of Sept. 11.
We’re going to see more of the same even as we recover from the coronavirus pandemic. Cybersecurity was important before; it’s going to be even more critical now.
Add to that the fact that remote work is going to be a part of the post-pandemic landscape. Major companies like Shopify, Facebook (NASDAQ:FB) and Spotify (NYSE:SPOT) already have established long-term work-from-home policies.
Those remote employees are going to be targets. Cybersecurity providers are going to see explosive demand as a result. And CrowdStrike seems like the company best-positioned to take advantage.
After all, CrowdStrike has built its business in the cloud. Rivals like Palo Alto and FireEye are trying to pivot from on-premise applications, which gives CrowdStrike a competitive edge.
Even before this crisis, the company was winning. A third-party report estimated that the company’s market share nearly doubled in the last two years. The top three providers all lost ground.
In other words, CrowdStrike is getting its market share from the industry’s leaders. It should be able to keep that trend going.
So we have a company that will take share in a market that will show potentially explosive growth. It’s already growing at an impressive clip: revenue rose 85% year-over-year in the fiscal first quarter. I’d expect its growth to accelerate going forward.
CRWD Stock Is Expensive
Again, some investors might believe that story is fully incorporated into the CRWD stock price at this point. I’m somewhat sympathetic to that argument.
But I’d repeat a point I’ve made before: the winners in this market have kept winning. Perhaps that will change at some point, but for the last few months — and for several years before the crisis — investors were best-fit focusing on the quality of the story over the supposed risks in the valuation.
I’m far from ready to see that trend ending. Rather, from a long-term perspective, it makes perfect sense. I’ve called this decade the “Roaring 2020s,” and the current crisis doesn’t change that fact.
Tech leaders are going to literally change the world. And CrowdStrike will be one of those leaders — or, at least, will be the company protecting most of those leaders.
So, yes, CRWD stock is expensive. It should be. It has the opportunity to be the biggest player in an enormous, growing industry. That’s the kind of company investors clearly want to own right now — and I don’t see any reason why they will change their mind.
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Source: Investor Place