CrowdStrike Holdings (NASDAQ: CRWD) provides cybersecurity products and services to stop breaches. The company was founded in 2011, and is headquartered in Austin, TX.
As of 23 Mar 2022, CrowdStrike Holdings' stock is trading at $217 and is up by 9% year-to-date (YTD). Over the past 12 months, the stock is up by 14%, whilst the S&P 500 is up by 15%, which means the stock has performed ever so slightly worse than the broader market over this period.
But what is CrowdStrike Holdings' outlook as a long-term investment opportunity? Let’s take a closer look and find out.
Why are fundamental metrics important?
Over the long term, a company’s stock price usually reflects its fundamentals, and analyzing these gives us a better understanding of the underlying trends which can tell us if the company is likely to be a good investment over the long term.
By 'fundamentals', we mean a set of key metrics which include earnings per share (EPS), price to sales ratio (P/S ratio), price to book value (P/BV) and debt. When looked at together, fundamentals can tell us whether or not a company is likely to be a good investment, and for as long as investors have been buying stocks, they have relied on fundamentals to assess the financial health of an organization as well as its growth prospects.
What do CrowdStrike Holdings’s fundamentals tell us about the investment opportunity? Let's have a look.
CrowdStrike Holdings stock: the fundamentals
First, let's look at the EPS. This metric is important to help us understand how profitable the company is on a 'per share' basis, and it is calculated as net income (after dividends on preferred stock) divided by the number of outstanding shares. So if a company has $1 million in profit and 1 million shares of outstanding stock, it will have an EPS of 1.
Based on its last reported balance sheet, CrowdStrike Holdings's EPS is -1.03, and year-on-year, it increased by 1%. Modest growth, but growth nonetheless and that’s what we like to see.
Next, let's look at the P/S ratio, which looks at a company's stock price compared to its sales (revenues). It is calculated as the current price divided by sales for the previous 12 months, and is useful because it helps us understand how much investors are willing to pay for every dollar of a company's revenues.
CrowdStrike Holdings's P/S ratio is currently 34. This is 242% higher than the sector-wide average of 9.9. The fact that it is currently above the sector-wide average isn't particularly encouraging, and indicates that the stock may offer less value compared to other companies in the same sector.
We also like to look at a company's price to book value (P/BV), which tells us how much investors are willing to pay for a company's assets. It is calculated by the company's stock price divided by its net assets (or 'book value', meaning the value of all assets which appear 'in its book'). P/BV is used by value investors to identify potential investments, and a P/BV of 1 is usually considered a solid investment.
CrowdStrike Holdings's P/BV is 48.8 according to its most recent financials, and this is 377% higher than the average across the industry, which is 10.2.
Finally, when analyzing a company as an investment opportunity, you should always take a look at how much debt they have on their books, as this can help you assess how risky a company is as an investment. Carrying a large amount of debt can be a red flag if the company is not generating enough free cash flow to service the debt.
CrowdStrike Holdings has total debt of $775M as of 23 Mar 2022, and this has climbed by 1% over the past year. The company also has cash & short-term investments totalling $2bn, giving it a 'net debt' of $-1.2bn.
Based on these figures, CrowdStrike Holdings's current levels of net debt don't worry us, as the company is not using debt to fund their operations, which is good to see.
The bottom line on CRWD's stock
In summary, we saw a mixed outlook for CrowdStrike Holdings's stock.
Notably, the stock is up by 9% YTD and by 14% over the past year. And whilst it's good to see that it is showing positive EPS growth y/y, we can't ignore the fact that the company has a higher P/E ratio, higher P/BV and higher P/S ratio compared to competitors within the same industry.
In summary, although there are positive signs, we're not convinced CrowdStrike Holdings deserves a place in your portfolio just yet. We do, however, think it might be worth adding to your watchlist to keep an eye on.
As with any stock however, there are additional factors to consider before making an investment decision. This analysis is general in nature, based on historical data, and does not take into account your specific investing objectives or financial circumstances. Additionally, this article does not look at the macro environment where geopolitical headwinds, internal company changes and individual technicalities in the way a company conducts its business can have a significant impact on a company's long-term outlook. Please do your own due diligence before deciding to invest.