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CrowdStrike: Great Company But A Bad Stock

SL Investments profile picture
SL Investments


  • CrowdStrike is the leader in the future of cybersecurity, and the company's potential doesn't end in cybersecurity. The acquisition of Humio adds even more potential in the data management industry.
  • However, the greatness and the promising future of CrowdStrike do not justify CrowdStrike’s current valuation.
  • The company is trading very rich during the time of increasing market turmoil.
  • Investors should wait for the stock to see a correction before investing in this company.

Data protection and secure online payments. Cyber internet security technologies and data encryption . Closeup view of man`s hand using laptop with virtual digital screen with icon of lock on it.
Photo by Traitov/iStock via Getty Images

Investment Thesis

CrowdStrike (NASDAQ:CRWD) is one of the fastest-growing cloud-based cybersecurity service providers with immense potential. I truly believe that the company has healthy financials and immense growth potentials. However, I do not think that the

This article was written by

SL Investments profile picture
I am a young private investor seeking to find advice and knowledge through my journey in Seeking Alpha. I primarily focus on growth companies and the disruptive future they may bring. Through the rise of technological capabilities, I believe that the world will undergo a massive transition in the coming decade.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (66)

Crwd+mRNA= $$$
A stock that has appreciated 150% in the last year is a bad stock? Is this the quality of SA articles now?
SL Investments profile picture
@warrenwise03 Again, Great company but a bad stock now. I meant to say that there are downsides considering the short-term risks. Please do not just read the title of the article.
@Eric Lim it's definitely an odd/clickbait-y choice of a title for a stock that has gone up 200% from it's IPO 2 years ago.
Jake Thomas 50 profile picture
So many longtime value investors (like me) share this guy’s view that valuations do not justify buying the stock. I used to think like this too. How did that work out for those value investors who avoided growth tech stocks like apple, amazon, shopify, etc. yrs ago when they were high growth and “overvalued”. There are many more investors who now (and for the last 25 yrs) are comfortable buying stocks on the promise of future earnings, not just current earnings. This drives prices higher and the value investors miss the boat until the earnings catch up. And by that time, they missed out on huge growth. I used to be a value investor and still am to some degree for mature stocks in mature industries. But some high growth stocks, like Crwd, renewable energy, EV, etc will grow into their valuations just as amazon, apple and others did. I am comfortable taking that leap of faith for part of my portfolio for companies with a competitive edge in high growth markets. Fool me once, shame on you. Fool me twice, shame on me.
SL Investments profile picture
@Jake Thomas 50 I am confident in owning strong companies that are overvalued at today's prices but only to some degree. I might be behind the trend and miss out, but I will rather be safe than sorry.
@Jake Thomas 50 I can understand that with some stocks, but this stock has a market cap of 50B and estimates a TAM of 100B in a few years. It’s trading at 200+ Fwd eps and that’s like 2-3 years out. I don’t understand this space enough to make an educated assumption, but based on TAM, current market cap, ect it seems pretty expensive. I like the more legacy growth names like AVGO, MSFT, ect. This is too speculative for me and I’m in my 20s. I would rather trade btc with my money than attempt to buy this haha.

Even if this “grows” into its valuation, then where does it grow after that? Seems like success is baked into the price, but maybe I’m missing something?

> I would rather trade btc with my money than attempt to buy this haha.

Sounds like you are a trader, not an investor. You need to understand the difference. Security spend could (will?) grow beyond the expectations of most. You need to understand FOBTNO (fear of being the next one) and how it will drive CIOs/CEOs to spend.

I won't comment on your trading btc, I don't try to make an "educated assumption" (maybe you might do the same in Security?).
Very informative, thx! I’m out of crwd, presently looking for better entry. Maybe not?
SL Investments profile picture
@RWilliam I'm also looking for a great entry
Yes, CRWD has a high valuation & with the tech wreck continuing, it could drop another 10-15% but that isn’t for sure. Btw it already has had a sizable correction. Scaling in might be the way to go so one buys more if I’d drops more.
SL Investments profile picture
@drbob512 Yes, timing the bottom or top is never a smart thing to do.
I have 50 shares of crowd bought at 220 range should i sell at 194 and wait for it to go lower what i am asking is what is a good price to buy crwd
@john boy anyone that knew wouldn’t be here they be on 200’ yacht.
There are several support areas the stock could stop at the first or blow through the second.

Imho Support is 144-150 then around 120, I be looking to buy it there on the next big sell off.
makes sense to me it went up so far so fast so its confusing for me
@john boy Don't shop price. Chart a one year stochastic, notice the pattern, buy below 20. We rarely get the tops or bottoms but we sure can get close. Take a half position and fill if there's a test of the lows. Or buy the just out of the money $190 July or Oct calls for a tenth of the cost of the stock. Good Luck.
2 glaring issues with the early part of your premise:
1) CRWD went public in 2019, not 2017. That's a big difference and shows that some basic research wasn't done here.
2) Stock-based compensation increased 87% YOY due to one-time stock grants awarded to senior Management for finishing the year profitable (for the first time). That's a major milestone for the company and that's why the compensation saw a big increase, not simply for no reason.

I'm not staying that it's not high compensation, or that the stock is a good one, but you need to look deeper than just the numbers... And get the basics right.
shortoptimism profile picture
They are maybe one of the first cyber security companies leveraging the network effect in the field. The more customers they add the better their systems get, the more they will add. Similar to teslas data collection from its sold fleet in building their Ai capability. crwd uses their customers as forward sensors to learn and shape their system in real time. It’s brilliant. If they ever add a consumer product it could skyrocket.
Jim Cramer has always said that CRWD is a buy in the 180s range. These goons in here are shorters.
@SPIROS LAZARIS Jim Cramer is a joker! Listen to someone else and you'll be better off! I'll suggest Karen Finerman on Fast Money! Just my opinion!
@Rick Both
Yeah, don't listen to Cramer, listen to his ex-wife lol.

Teranova or Brown maybe, not Finerman.
@canyon I guess that's what makes markets! (didn't realize Cramer got divorced)
geoffgw profile picture
Holding on to this space, Fortinet @$75, CRWD @$120, PLTR @$11, and related DDOG @$32, all have been great, trimmed on DDOG and PLTR, but cloud security will be hot for a long time
fanfare profile picture
In most situations where we find 'nosebleed' valuations on IPO's, we should have cause for pessimism. However, for industry insiders who understand the 'snowballing' security issues we are currently facing, and the fact that CRWD is 'killing' it in the sector, we cannot afford to sit on the sidelines. This company is nothing short of spectacular. It just does not get any better than this. I've owned many companies in this space .... since the mid 90's. I've never seen any company with an 'edge' and a 'moat' as strong as CRWD. The ratios are the only points a 'bear side' has, and while valuation is not something to be ignored, remember that this company IPO'd only 2 yrs ago. The costs of a breach, to both .gov and enterprise, are rising. Our infrastructure is strained, which means security is harder. A slow network is a vulnerable network. CRWD is, often, the only solution that can stop some of the more sophisticated attacks. It's not going to get easier out there .... trust me.

I could go on. There is a lot more to say on this stock. I recognize that you are young, and encourage you to keep researching/learning. But this stock is eating competitor lunches faster than you can say "quarter pounder with cheese". I try to keep all emotion away from my screens when I work, but I can't help but get excited about CRWD.

This company continues to win big in its space. The only concerns I do have, which you mentioned of course, are the 'macros'. Inflation is likely to get worse before it gets better, and if this administration does not stop handing out Trillions of $$ like a drunk sailor on a weekend pass in Subic, we could be in for a rough ride for the next 4-5 yrs. Add to this the impact of more covid variations, and the very real probability of this pathogen jumping immunity/vaccines, and I see a sideways market in our future ... at best. Nevertheless, I loaded more 2022 and 2023 calls today, and I am heavily overweight.
SL Investments profile picture
@fanfare I agree with you. Nobody can time the market perfectly, but for me, I am already exposed to some speculative stocks that I have high conviction in. So, I am probably even more cautious with CRWD, and CRWD is the company with highest valuation in my watchlist. I'll think more about this comment and hopefully make a correct decision soon. Thank you.
wsoyke profile picture
@Eric Lim
CRWD is not a speculative stock. Volatile yes. That provides frequent buying opportunities. Your stocks with lower valuations are likely your most speculative positions, as many of those have low valuations for very good reasons. Reasons that may not be apparent to you.
Early in my travels of managing my own investments, I used various tools to identify "undervalued" stocks. After all, buy low, sell high, right? Well, that's when I learned that "undervalued" was often "undervalued" for a reason.
Later I bought MSFT when they initiated a subscription based business and moved toward cloud. Initial investments were high and returns were low. So the share price was wildly overvalued. I loaded up at around $32. You can do the math. Similar story with AAPL. WHO has ever said AAPL is "undervalued". I invested around the time the watch came out, and they were moving to expand services. "Overvalued! " "The watch will be a bust!" "They're a hardware company." Well you know how that one turned out too.
Now CRWD. "Undervalued?" No one is saying that. But this is a company with great products, in a mission critical business, with extraordinary TAM, extraordinary growth. It may never seem "undervalued". But it will make a lot of money for shareholders. Can it go lower after dropping 25% in 2 months? Sure! What if it drops another 10% from here? What will that matter 10 years from now?
SoloDolo92 profile picture
@fanfare this comment just fueled my confirmation bias, and I’m not mad 😂👏🏾
DaveJulio profile picture
Nice article, Eric. I agree with your market sentiment point and that CRWD valuation is definitely at the high end of tech. However as you note, this is a very high quality company with an incredible business model. I don't agree with comparing the performance vs. valuation to AMD. Why? Because CRWD is a SAAS model and has a full year's worth of subscription revenue deferred on the balance sheet that flows to revenue over time. This provides a stabilizing factor for the future revenue stream and allows for much higher level of predictability than for say, a typical hardware business.

Regarding the stock comp expense; yes, CRWD is certainly at the high end in the tech world. However they have been reducing significantly the number of options granted each year since 2018, and transitioning to mostly restricted stock issuances. The problem is, options carry a higher value generally, and the expense is amortized over the life of the option, which is about 6 years. So it will take a bit before we see the stock comp expense start to come down. Even so, to your point, they granted RSU's to employees totaling about 2% of outstanding shares in the recent year ended, which is not insignificant and needs to be considered in any valuation model.
SL Investments profile picture
@Moe Lawn Now I think about it, I might have made a mistake comparing AMD and CrowdStrike. When I was writing this, I thought that AMD's greater growth rate could make up for the CRWD's better business model. I can see why this comparison could have been misleading. Thank you for pointing this out.
This is not a stock that one wants to miss out on the move. Don't try and time it, trade it (if you're an investor). Hold this, just wait for a cyber hack that *really* affects your life. Not some hack where they get some data, maybe a CC number (big deal, I just tell the bank not to pay and get a new number)... but a hack that impacts your life in a meaningful way, like:

- you find your bank balance to be zero
- you have no electricity for some days
- you have no clean water for a week
- all the traffic signals in your town are messed up
- the market can't process credit cards and tells you to use cash only (and there's lines at the ATMs)

When that happens, stocks like CRWD will really pop. Sometimes up and to the right isn't a smooth path.
LookingAtStocks profile picture
@canyon Well, with those happy thoughts, I think I'll pour myself a strong adult drink...one of many. ;o)
Have we ever had one of those issues
@john boy how about a fuel pipeline shutdown after a ransomware attack?
I own CRWD great product - I don’t disagree with the market sentiment— tech is out of favor. It does have a high valuation. I am curious what you think a fair evaluation really is?
SL Investments profile picture
@ARom11 I'm really cautious about openly saying the exact price target I am looking for because nobody can predict the market, and I do not want anybody to miss the opportunity because I gave the wrong price target. I'm planning to start a small initial position as the trend changes. I will be monitoring how the markets react to Unemployment data tomorrow and CPI data next week. These data will be crucial, in my opinion, in deciding high growth tech stocks market sentiment for the foreseeable future. Good Luck.
wsoyke profile picture
@Eric Lim
I suppose the -25% in the past 2 months is not enough of a pullback?
SL Investments profile picture
@wsoyke I can be wrong, but I think there are more negativity left in the market to bring this stock down further.
Nice balanced article to counter the uber bullish thesis. Well thought out sir.

It's already corrected over 25%. Holding long term.
SL Investments profile picture
@rammbler65 I really want to enter, but contemplating because of the valuation. Long CRWD.
@Eric Lim I was worried during the recent inflation sell off as I am long CRWD and Net. They never dropped 7-8% from my originally buying point and I entered my position in March. If massive inflation fears can’t knock it lower only underperformance will. I’m not betting against CRWD even though I think I might be emotionally attached bc of the profound secular growth story. Emotions blind you so I am almost scaring myself. I am expecting that at some point it will hit mid 170s or lower and I literally have funds specifically set aside to add more in this case.
Good article, I am long Crowdstrike but always like to look at different views.

One point I would correct is that Crowdstrike went public in 2019, not 2017 as you mentioned.


I will pay up for the best company in a relevant space. Crowdstrike is the unquestioned dominant player in a rapidly growing industry that will be critical moving forward.
SL Investments profile picture
@DPJenkins Thank you for pointing out my mistake.
@Eric Lim No worries, and the stock based compensation was an observation I had totally missed - definitely made me think. Good article.
Sharon Keren profile picture
I have to disagree with your conclusion. I think it’s great time to invest in crwd now! This might go down 20 or even 30% but might shoot up too. Can’t time that great growth story, too risky to miss it.
SL Investments profile picture
@Sharon Keren I think it just depends on our investing styles. Some people are more cautious while others take the great high-risk high reward companies. I do agree that if this shoots up I will deeply regret not buying.
wsoyke profile picture
@Eric Lim
This has been a volatile stock, which allowed me to make $45 per share in total option premiums.
I see the following potential catalysts to push the price higher.
1. Another high profile hack that would/could have been stopped if CRWD was in place.
2. Another key acquisition.
3. Investors wake up and realize that COVID impaired stocks are still impaired and that tech stocks are still making crazy $$$.
4. Next earnings report.
I don't see anything to logically push it much lower. While waiting for that elusive pullback, it could suddenly surge up. Then the familiar chorus "overvalued!".
CRWD is arguably the best cybersecurity company. Best product. Best growth. Probably the most important subsector within tech. Think about all that needs protection. Every device, app, program, email, access points, data, transactions, etc... Who needs it? Short answer - Every company, large or small, every government agency, anything that interacts in the digital world.
I'm not sure PE or PS is the best way to value CRWD. I do know those metrics caused me to miss out on AMZN. **
@Eric Lim Thanks for the article; good analysis, I have been trading this stock (so far successfully) as it has tremendous volatility. This year, I disciplined myself to buy every time it gets into 170-180 range and sell every time it gets into 205-215 range. I do not try to time the market, just execute in these price ranges. Of course the price has gone higher at times but it seems to come back. We are nearing the third cycle of these price ranges just this year. Of course I can afford to wait it out and do not have FOMO when I sell.

In your opinion, what is good range for an entry point? Thanks.
@Enw0717 I dont think you have the right stock.
SL Investments profile picture
@Enw0717 I don't want to give an exact price target because nobody can really predict those. I just want investors to be at least wary of the current situation and the risk the extremely high valuation brings.
@WinDiddy : I respect your opinion but I have made over 90K in less than a year with it; that works for me. Good luck in your investments.
LookingAtStocks profile picture
Very good article....agree wholeheartedly. Josh Brown, who appears regularly on CNBC's Halftime Report from 9-10 AM PST, should read this analysis...he's an over-the-top ultra bull on CRWD.
SL Investments profile picture
@LookingAtStocks I mean I really understand why anybody would be bullish on CrowdStrike. As I was researching, I realized the immense potential, but paying over 600 forward prices to earnings was a little too much, in my opinion.
Gary Kime profile picture
@Eric Lim CRWD is not a stock you even consider the PEin making your decision. It’s either going to grow like a weed and be super successful or flame out! Josh Brown is one of the best!
SL Investments profile picture
@Gary Kime You might be correct. Blindly looking at price to sales and price to earnings can have consequences, but I think we should at least consider these when investing.
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