It has been a tumultuous year for cybersecurity giant CrowdStrike (NASDAQ: CRWD). The stock surged to record highs this year before a massive outage undermined confidence in both the company and stock.
Still, to the company's credit, the work to restore its credibility began just minutes after the outage, and the cybersecurity stock has recovered from recent lows. Unfortunately, that could make the stock more unpredictable, leading investors to question how much CrowdStrike stock can grow over the next year.
The state of CrowdStrike
CrowdStrike is a leader in endpoint protection cybersecurity, leading numerous customers to turn to the company to protect endpoints such as smartphones, PCs, and servers.
Moreover, customers have increasingly chosen to buy all cybersecurity products from one vendor. CrowdStrike had built customer confidence to the point that 65% of its customers subscribed to five or more security modules from the company, at least before the outage.
Hence, the decision to quickly admit its fault in the issue and rapidly issue a fix likely preserved its reputation. So far, no evidence of a mass exodus of customers has materialized.
Indeed, Delta Air Lines has sued CrowdStrike over the effects of the outage. According to risk and reinsurance specialist Guy Carpenter, the cost of the outage may range from $300 million to $1 billion. Still, CrowdStrike's insurers will probably cover most of that cost, mitigating the financial damage to the company.
Additionally, CrowdStrike's work to renew confidence in the company has also benefited its stock. After a drop of around 48%, CrowdStrike stock is down about 25% from its pre-outage high during the summer.
Ongoing challenges
Unfortunately, investors have received little data as to the exact effects of the incident. The July 19 outage happened at the end of the second quarter of fiscal 2025 (which ended July 31). Hence, investors will have to wait for the Nov. 26 earnings report for fiscal Q3 to get a hint of the financial damages.
Moreover, the company's revenue growth was already slowing. In the second quarter of fiscal 2025, revenue had increased 32% to $964 million. In the year-ago quarter, the yearly revenue increase was 37%.
Looking to fiscal Q3, the company forecast a yearly revenue increase of just 25%.
Fortune Business Insights forecasts a compound annual growth rate of 14% for the cybersecurity industry through 2032. Thus, CrowdStrike's growth should outperform industry averages. Still, if the financial burden of the outage is worse than anticipated, it could hurt the stock price.
That could also mean that CrowdStrike's valuation, specifically its price-to-sales (P/S) ratio, could become an issue for investors. The P/S ratio, which was close to 30 before the outage, has now fallen to 21. However, competitors like Zscaler and Palo Alto Networks sell at 13 times and 16 times sales, respectively. Such a differential could lead investors to question whether CrowdStrike stock deserves its premium.
Where will CrowdStrike be in one year?
Although CrowdStrike is likely a long-term winner, its investors face considerable uncertainty over the next year.
Indeed, CrowdStrike benefits by leading a key area of a fast-growing industry, and it is likely to remain a market-beating holding over a longer time horizon. Also, at least in the immediate aftermath of the July 19 outage, customers seemed to subscribe to the company's security modules in high numbers.
Nonetheless, despite its insurance mitigating much of the costs associated with the outage, the company has not yet released financial data related to the incident, leaving investors uncertain about the effects. Additionally, with revenue set to slow before the outage, investors may question the stock's value, given its elevated valuation, making the immediate performance of the stock harder to predict.
Considering these challenges, now is probably not a good time to buy CrowdStrike stock unless one has a long-term time horizon in mind.
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Will Healy has positions in CrowdStrike and Zscaler. The Motley Fool has positions in and recommends CrowdStrike, Palo Alto Networks, and Zscaler. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.
