The price action in CrowdStrike (NASDAQ: CRWD) stock is up 25% following the Q4 release and 2024 guidance, but the rally is not over yet. The results and outlook confirm the company’s momentum is solid, and analysts have underestimated its strength. The takeaway is that analysts are raising their price targets and leading the market higher.
The first dozen analyst revisions to hit the wires following the release have the stock trading in the range of $400 to $450, another 25% upside at the high end. Assuming this company continues to build on its successes, and there is no reason to think otherwise, CRWD’s price target will likely continue to move higher this year and the $500 level reached before the year is through.
CrowdStrike Is A Cyber Security Platform of Choice
Because of its utility, CrowdStrike has emerged as a cyber security leader among top-performing cyber security stocks. The company’s one-platform approach makes it simpler for businesses to use and scale, as seen in the results. The company’s Q4 growth slowed as expected, but the $845.6 million is up 32.6% YOY and nearly 100 basis points better than expected, compounded by strong guidance.
The top-line strength is subscription growth and penetration, with subscriptions up 33% and ARR up 34%. ARR is solidly up on a 27% increase in net-new ARR supported by penetration. Penetration of services is seen in adoption rates, with clients using five or more modules up 64%, six or more up 43%, and seven or more up 27%.
Margin is also a bright spot in the report, with gross margin up 300 bps GAAP and adjusted. The combination of top-line strength and wider margin led to the 4th consecutive quarter of record net income, adjusted net income up 104%, and record operating and free cash flow. The free cash flow is up 31% YOY and has substantially improved shareholder equity.
As good as the results are, the guidance has the market up 25%. The company guided Q1 and FY 2024 in a range above the consensus, and the forecast may be cautious. The company announced a definitive agreement to acquire Flow Security and is expected to close on the deal this month. Flow Security is the only provider of runtime security for the cloud, a critical aspect of cloud-based cyber security.
Valuation Not a Concern for CrowdStrike Shareholders
CrowdStrike is among the most highly-valued cyber security stocks, and its valuation is only getting richer. The post-release pot has it trading near 95X its 2024 guidance and heading higher because the outlook for long-term growth is improving. The valuation falls to only 75X for next year and will halve in 2026, assuming the growth trajectory does not change. Because the company consistently outperforms, the guidance and analysts' forecasts are likely too light.
Insiders are selling shares, but don’t read too much into it. The company leans heavily on share-based compensation, and insiders are taking profits as the stock price soars. Insiders still own more than 5% of the company, and institutional holdings are also ample. Institutions, including funds and private capital, have bought this stock on balance for five consecutive quarters and hold about 65% of the shares. The largest shareholders are Vanguard at over 10%, followed by iShares and Invesco.
The Technical Outlook: CrowdStrike is on Fire
The price action in CRWD stock is on fire and could rise substantially over the next few quarters and years. The technical outlook alone suggests a potential move of $200 or 200% based on the magnitude of the pattern preceding the Q4 release. In this scenario, the stock could move above $500 soon and sustain upward movement into the $800 to $900 range.
