Cybersecurity specialists like CrowdStrike (CRWD) are said to have a "clear green light" heading into third-quarter earnings season, according to Dan Ives, analyst at investment firm Wedbush Securities, who cited channel checks and deal flow for the current quarter.
Down 31% year to date, compared to a 15% decline in the S&P 500 index, CrowdStrike stock has been under pressure for most the year. And when expanding that to the previous 52 weeks, the stock has lost 40% of its value. This is even as the company has posted strong free cash flow and possess a solid balance sheet, while surpassing revenue estimates for fourteen straight quarters. Ahead of its third quarter fiscal 2022 earnings results after the closing bell Tuesday, now might be a good time to buy.
"We believe federal deal flow in [the third-quarter] was a clear standout as more government agencies are laser focused on protecting data, endpoints, [and] infrastructure in an increasing dangerous cyber environment with threats increasing by the day," Ives wrote in a note to clients. This bodes well for CrowdStrike and its next-generation endpoint security technology platform that is aimed at stopping data breaches before they can inflict damage. The management team has done a solid job executing on the company’s stated objectives of dominating the cloud security market.
Demand for better cybersecurity and overall awareness has surged over the past two years, driven by corporate digitalization and the massive shift to remote work. Among the biggest beneficiaries of this trend has been CrowdStrike. In the company's last earnings report, revenue grew 58% year over year to $535.15 million, beating its own guidance of 55% revenue growth. The market is hoping for more of the same on Tuesday. To reverse the stock’s decline, the company must deliver another strong revenue beat and provide upside guidance.
For the three months that ended July, Wall Street expects the Sunnyvale, Calif.-based company to earn 31 cents per share on revenue of $573.82 million. This compares to the year-ago quarter when earnings were 17 cents per share on revenue of $380.05 million. For the full year, ending in January, earnings are expected to rise 97% year over year to $1.32 per share, while full-year revenue of $2.23 billion would rise 53.7% year over year.
Currently trading at roughly 14 times forward revenue, CrowdStrike remains attractively priced, given the opportunity it has to grow market share in the quarters ahead. Execution has never come into question. Aside from a surge in new customer acquisitions, CrowdStrike continues to find ways to get its existing customers to add more features and functionality. During the span of the past sixteen quarters, the company has surpassed retention rate of 120% (dollar-based) which means that its customers recognize the value in the products and services they are purchasing from CrowdStrike.
In the second quarter the company posted adjusted EPS of 36 cents per share which beat consensus estimates by 9 cents, while Q2 revenue of $535.15 million rose 58% year over year, surpassing Street estimates by close to $20 million. Notably, Q2 revenue was more than 3% higher than forecasted. Q2 subscription revenue was $506.2 million, rising 60% year over year. The company also produced a 59% increase in net new annual recurring revenue which rose to $218 million.
What’s more, the management raised fiscal year guidance and reiterated a 30% free cash flow margin. The fact that CrowdStrike has achieved retention rate of 120% despite the intense competition highlights its leading position in the cloud security market. And with the stock down 40% over the past year, CrowdStrike remains a quality company that should be added to any growth portfolio.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
Read Richard's Bio