One of the biggest losers as of today's afternoon session is software company CrowdStrike, a whose shares are down -19.6%, underperforming the Nasdaq by -19.9%.
At $111.02, CRWD is 52.3% below its average analyst target price of $232.73.
The average analyst rating for the stock is buy.
CRWD lagged -19.5% behind the S&P 500 index today, and by -19.2% over the last year, returning -31.5%.
CrowdStrike Holdings, Inc. provides cloud-delivered protection across endpoints and cloud workloads, identity, and data. The company is a technology company. Valuations in the technology sector are often very high, as investors are willing to overlook gaps in the fundamentals if they believe a company’s innovations can dominate or create new markets.
CrowdStrike does not release its trailing 12 month P/E ratio since its earnings per share of $-0.79 are negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for CRWD of -140.2. Based on the company's positive earnings guidance of $1.87, the stock has a forward P/E ratio of 59.4. As of the third quarter of 2022, the average Price to Earnings (P/E) ratio of US technology companies is 26.5, and the S&P 500 average is 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (Eps), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
We can take the price to earnings analysis one step further by dividing the P/E ratio by the company’s projected five-year growth rate, which gives us its Price to Earnings Growth, or PEG ratio. This ratio is important because it allows us to identify companies that have a low price to earnings ratio because of low growth expectations, or conversely, companies with high P/E ratios because growth is expected to take off.
CrowdStrike's PEG ratio of 1.42 indicates that its P/E ratio is fair compared to its projected earnings growth. In other words, the company’s valuation accurately reflects its estimated growth potential. The caveat, however, is that these growth estimates could turn out to be inaccurate.
To better understand the strength of CrowdStrike's business, we can analyse its operating margins, which are its revenues minues its operating costs. Consistently strong margins backed by a positive trend can signal that a company is on track to deliver returns for its shareholders. Here's the operating margin statistics for the last four years:
| Date Reported | Total Revenue ($) | Operating Expenses ($) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-01-31 | 1,451,594,000.0 | 1,587,942,000.0 | -9.39 | 11.25 |
| 2021-01-31 | 874,438,000.0 | 966,967,000.0 | -10.58 | 65.13 |
| 2020-01-31 | 481,413,000.0 | 627,478,000.0 | -30.34 | 44.61 |
| 2019-01-31 | 249,824,000.0 | 386,688,000.0 | -54.78 | n/a |
- Average operating margins: -26.3%
- Average operating margins growth rate: 40.3%
- Coefficient of variability (lower numbers indicate less volatility): 81.1%
CrowdStrike's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to its operating cash flows minues its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations ($) | Capital expenditures ($) | Free Cash Flow ($) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-01-31 | 574,784,000.0 | -112,143,000.0 | 462,641,000.0 | 52.3 |
| 2021-01-31 | 356,566,000.0 | -52,799,000.0 | 303,767,000.0 | 1438.45 |
| 2020-01-31 | 99,943,000.0 | -80,198,000.0 | 19,745,000.0 | 133.57 |
| 2019-01-31 | -22,968,000.0 | -35,851,000.0 | -58,819,000.0 | n/a |
- Average free cash flow: $181,833,500.00
- Average free cash flow growth rate: 541.4%
- Coefficient of variability (lower numbers indicating more stability): 133.9%
Free cash flows represents the amount of money that is available for reinvesting in the business, or paying out to investors in the form of a dividend. With a positive cash flow as of the last fiscal year, CRWD is in a position to do either -- which can encourage more investors to place their capital in the company.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). As of the third quarter of 2022, the mean P/B ratio of the technology sector is 5.57, compared to the S&P 500 average of 2.95. The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. CrowdStrike's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 21, so it's likely that equity investors are over-valuing the company's assets.
As of third quarter of 2022, CrowdStrike is likely overvalued because it has a negative P/E ratio, an elevated P/B ratio, and a pattern of improving cash flows with an upwards trend. The stock has mixed growth indicators because of its negative operating margins with high variability with a positive growth rate, and an average PEG ratio. We hope this analysis will inspire you to do your own research into CRWD's fundamental values -- especially their trends over time.
