While artificial intelligence (AI) is attracting investors’ attention, there’s another big trend they should be aware of: cybersecurity. Bad actors have never had so many tools and the amount of digital information that can be accessed is also growing. This isn’t a trend that’s going to go away either; Companies must ensure they have top-notch security or risk being the target of a cyber attack, which could cost millions and destroy trust in a company.
As a result of this new reality, the cybersecurity industry is seeing a huge boom. But with so many cybersecurity companies to choose from, it’s easy to get lost. One company is my clear choice and has the potential to become a much bigger force in this industry.
CrowdStrike has become a top pick in the cybersecurity space
CrowdStrike (NASDAQ:CRWD) It’s my top pick in the cybersecurity space for several reasons. First, it’s a lightweight, cloud-native program. This means it can be easily deployed to all endpoints on a corporate network quickly and doesn’t require a lot of bandwidth. Additionally, CrowdStrike has integrated AI into its product line since its launch.
Unlike some companies that use AI as a buzzword, the CrowdStrike platform is built on it. Its main product on the Falcon platform is endpoint protection. This protects network access points like laptops or cell phones from external threats, and CrowdStrike uses AI to analyze activity to understand whether it is normal or a threat. It can terminate access to a company’s server without human intervention if it detects a threat.
It also has its Charlotte AI, a generative AI product. This allows users to automate workflows, speed up investigation time, and reduce the number of skills needed to become cybersecurity experts. Based on customer research, Charlotte helps save around two hours a day through increased efficiency.
CrowdStrike has a huge product line that has slowly grown over the last few years. Instead of bringing together cybersecurity solutions from multiple vendors, CrowdStrike is working to become a one-stop shop for all cybersecurity needs. With products for endpoint protection, cloud security, identity protection, threat insights and more, CrowdStrike covers many areas.
This strategy has worked for CrowdStrike, as 64% of customers use at least five modules and 27% use at least seven. This shows plenty of room for product expansion among its customer base, so upselling existing customers and hiring new ones gives CrowdStrike two avenues for growth.
CrowdStrike Stock Got Expensive
Speaking of growth, CrowdStrike has been showing excellent growth for some time. In the fourth quarter of fiscal 2024 (ending January 31), its annual recurring revenue (ARR) increased 34% year over year to $3.44 billion. Looking ahead to fiscal 2025, CrowdStrike expects revenue growth of 30% to nearly $4 billion. Even though CrowdStrike is getting bigger, its growth isn’t slowing down, which is a testament to the demand in the cybersecurity industry and CrowdStrike’s prowess. Wall Street analysts even believe it could grow revenue at a 27% pace in fiscal 2026, to more than $5 billion.
CrowdStrike is also becoming more and more profitable every quarter.
So you have a company that is an industry leader in a rapidly expanding field and has excellent financial results. Seems like an obvious purchase, right?
Investors should also consider the stock price. It’s no secret that CrowdStrike is an excellent company and that its shares are appropriately priced.
A price of 28 times sales is very expensive, which is the main downside to CrowdStrike stock. I’m using the price-to-sales (P/S) ratio because CrowdStrike has not yet reached maximum profitability. To translate to the more familiar price-to-earnings (P/E) ratio, I’ll give CrowdStrike an artificial profit margin of 30% – a big target for software companies like CrowdStrike.
With that profit margin, CrowdStrike would have a P/E of 93 at today’s prices. If you use analysts’ fiscal 2026 revenue projection of $5.03 billion, CrowdStrike would trade at 56 times earnings.
That’s too expensive for many investors’ tastes, and I wouldn’t blame them for not buying at today’s prices. However, I would keep CrowdStrike on your radar as it is too good a company to forget if the share price drops to more reasonable levels.
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Keithen Drury has positions on CrowdStrike. The Motley Fool has positions and recommends CrowdStrike. The motley fool has a disclosure policy.
Here’s My Top Cybersecurity Stock (And It’s Not Even Close) was originally published by The Motley Fool
