The past couple of weeks have been quite eventful for cybersecurity giant CrowdStrike(NASDAQ: CRWD) -- and not in a way that it or its investors would have preferred. There are software mishaps that cause problems, and then there are software mishaps that cause the largest IT outage in history. Unfortunately for CrowdStrike, it was the source of the latter.
On July 1, CrowdStrike's stock hit an all-time high. It has since dropped close to 45% (as of Aug. 5) due to the outage it caused and what many believe can be a lingering effect on the company. Investors are rightfully hesitant about investing in CrowdStrike right now, and many are wondering if this incident has set the company on a path that will be hard to recover from.
If you're wondering if it's too late to invest in CrowdStrike, the answer is no, if you have time on your side.
The direct financial damage may be less than anticipated
Major airlines felt the impact of the July 19 outage possibly more than any other industry. Thousands of flights were canceled, and hundreds of thousands of people were left scrambling, trying to find answers and alternate routes to their destinations.
Delta Air Lines said the outage cost the company around $500 million, and it plans to seek legal action against CrowdStrike to be compensated. This move shouldn't come as a surprise, but unfortunately for Delta Air Lines, CrowdStrike's liability could be well below the $500 million it had to fork out.
CrowdStrike has pushed back against Delta Air Lines and says that any financial responsibility it has for the outage will be capped in the "single-digit millions" range. That's great news for CrowdStrike's balance sheet, but less-than-ideal news for Delta Air Lines.
It remains to be seen how much CrowdStrike will pay because of the outage, but the company's balance sheet should allow it to weather this storm without too much of a setback. At the end of its latest quarter, the company had more than $3.7 billion in cash and cash equivalents.
CRWD Cash and Equivalents (Quarterly) data by YCharts
An unfortunate event, but the business remains strong
CrowdStrike has a strong customer base, including being the cloud security provider for 62 of the Fortune 100 companies. I'm sure its customers aren't happy about the outage and domino effect, but CrowdStrike maintained that it was caused by a software update glitch, not a cyberattack. The former is an unfortunate mistake; the latter could have stuck a fork in CrowdStrike's business.
It also works to CrowdStrike's favor that switching cybersecurity providers is not easy, especially for larger companies that have deeply integrated security solutions into their daily business. It would take lots of resources, time, and other logistical challenges that could be more of a headache than a benefit.
If CrowdStrike's core product remained the same, most companies would not need to switch. The main problem would be prospective customers who may avoid CrowdStrike simply because of the recent flawed update.
Now could be a great time to start a stake in CrowdStrike for long-term investors
CrowdStrike's stock has routinely been priced at a premium, with many investors flocking to it because of its impressive revenue and free cash flow growth. When you invest in expensive stocks, you run the risk of a price correction, which has been the case for CrowdStrike (albeit because of a fluke incident).
CrowdStrike's price-to-sales (P/S) ratio is currently around 15.8, well below its average since becoming a public company.
CRWD PS Ratio data by YCharts
There are still some short-term questions surrounding CrowdStrike, but its current valuation gives long-term investors a more feasible entry point. I wouldn't go all-in on the stock right now, but dollar-cost averaging your way into a stake could be a great option if you have time on your side.
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Stefon Walters has positions in CrowdStrike. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.
