Cybersecurity giant CrowdStrike(NASDAQ: CRWD) is due to release the results for its fiscal 2025 third quarter (ending Oct. 31) in late November. The report will give investors a fresh look at how the company is navigating its disastrous July 19 outage, which knocked 8.5 million computers offline worldwide and cost some of its top clients a combined $5 billion.
CrowdStrike stock plunged 44% after the outage, but it has already regained half of that loss because the fallout hasn't been as bad as analysts anticipated. Here's why the company's quarterly results could accelerate the recovery, which makes the stock a great potential buy in November.
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CrowdStrike continues to be a leader in the cybersecurity industry
During his conference call with investors for the fiscal 2025 second quarter (ended July 31), CrowdStrike Chief Executive Officer George Kurtz said the outage caused many potential new customers to delay signing contracts. However, he said the majority of those deals remain in the sales pipeline, which suggests those businesses simply wanted to see whether the issue was persisting, and how the company would handle the crisis.
There aren't many good alternatives to what CrowdStrike offers its business customers. The cybersecurity industry has a history of fragmentation, which means vendors typically specialized in specific products, leaving businesses piecing together their software stack from multiple providers. CrowdStrike offers a holistic cybersecurity platform, meaning it protects all aspects of the enterprise, from cloud networks to employee identities to endpoints.
CrowdStrike's flagship Falcon platform offers 28 modules (products) in total. During Q2, the company said 65% of its customers were using at least five of them. Plus, the number of deals it signed for eight or more modules soared 66% compared to the year-ago period.
CrowdStrike's holistic approach to cyber protection is tied together by artificial intelligence (AI), which automates everything from threat detection to incident response. The company's AI models are trained on more than 2 trillion incidents every day, becoming more advanced and more accurate over time.
CrowdStrike also launched a virtual assistant for Falcon last year called Charlotte AI, and the company says it's saving customers an average of two hours per day. Since it uses a chatbot interface and knows practically everything about an organization's digital environment, it lets managers retrieve answers to customer queries 75% faster. Plus, Charlotte AI is capable of autonomously generating incident reports, which reduces the amount of manual investigative work required by employees.
Image source: Getty Images.
The outage hasn't affected CrowdStrike's long-term revenue forecast
The outage didn't have a significant impact on CrowdStrike's Q2 results because it happened with less than two weeks remaining in the period. The company generated $963.9 million in revenue in Q2, which actually topped the high end of management's forecast ($961.2 million).
Nor did the company make a big change to its forecast for the fiscal 2025 year (which ends on Jan. 31, 2025). Management now expects to generate $3.9 billion in total revenue, which was revised down from $4 billion previously -- a change of just 2.5%.
That's a good indication that CEO Kurtz expects the majority of the delayed deals in CrowdStrike's sales pipeline to close. But investors should keep a close eye out for further changes to the company's outlook when the Q3 report is released.
But there is even further evidence that the outage might be nothing more than a blip. CrowdStrike reiterated its long-term goal to achieve $10 billion in annual recurring revenue (ARR) by fiscal 2031. Considering the company had $3.86 billion in ARR at the end of Q2, that would represent an increase of 159% during the next six years.
CrowdStrike stock might be cheap for long-term investors
CrowdStrike is only recently profitable, reporting its first net income in fiscal 2024. So it's hard to value the company using the traditional price-to-earnings (P/E) ratio. The price-to-sales (P/S) ratio might be a better measure of its value, which divides its market capitalization by its trailing-12-month revenue.
Based on that metric, CrowdStrike has always been one of the more expensive cybersecurity stocks. It trades at a P/S ratio of 21.2, and while that's down from its peak of almost 30 before the outage, it's still much higher than the P/S ratio of its biggest competitor, Palo Alto Networks:
CRWD PS Ratio Chart
With that said, CrowdStrike deserves a premium valuation relative to Palo Alto because it's growing significantly faster. Its revenue increased by 32% in Q2, compared to an increase of 12% for Palo Alto. As long as there is no further unexpected fallout from the July 19 incident, the valuation gap between the two companies is probably justified.
But the potential long-term opportunity for investors is even more exciting. If CrowdStrike achieves its annual revenue goal of $10 billion by fiscal 2031, that would place its stock at a forward P/S ratio of 7.3. If it maintains its current P/S ratio of 21.2 , that implies the stock could deliver a 190% return between now and then.
That translates to a compound annual return of 19.4% during the next six years, which is almost double the average annual return of the S&P 500 going back to 1957. In other words, buying CrowdStrike stock could help you beat the market.
Since the stock is still down 23% from its all-time high, a positive Q3 earnings report might encourage investors to see that the worst is over. That's why buying in November ahead of the company's results might be an ideal entry point for the long term.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike and Palo Alto Networks. The Motley Fool has a disclosure policy.
