Shares of CrowdStrike Holdings, Inc. (CRWD - Get Rating) are trading down today after JP Morgan downgraded the stock from Overweight to Neutral. The stock was on a tear before today’s session, rising 17% for the month midday yesterday after gaining 23.8% in November. The stock is still up 230% for the year.

CRWD is a cybersecurity vendor specializing in endpoint protection, threat intelligence and hunting, attack remediation, and offers various solutions to supplement security and network operations teams. The company sells packaged tiers of cybersecurity protection and offers individual security modules via its online marketplace.

It’s gains last month were driven by positive coverage from analysts and strong momentum in the overall market. On November 11th, Baird analyst Jonathan Ruykhaver upgraded his rating on the stock from “Neutral” to “Outperform” and raised his one-year price target from $150 to $155 per share. In addition, Barclays’ analyst Saket Kalia wrote a note on the stock, maintaining an Overweight rating, and raising his price target from $150 to $170 per share.  

The momentum continued this month as the company reported strong third-quarter results on December 2nd. The company posted non-GAAP earnings of $0.08 per share and revenue of $232.5. This outperformed the consensus analyst estimate of $212.6 million and was up 86% year over year.

Subscription revenues soared 87% year over year to $213.5 million. This was due to an 85% increase in subscription customers. CRWD added 1,186 net new subscription customers during the quarter. Revenues from professional services jumped 73.7% year over year to $18.9 million.

CRWD also provided guidance for the fourth quarter, with earnings expected to come in between $0.08 and $0.09 per share. Sales are projected to be between $245.5 million and $250.5 million. This would represent an increase of 63% year over year at the midpoint of the target.

The Thesis for Buying

CRWD has a dominant position in its niche in the cybersecurity market. The pandemic has led to rising demand for security and networking products. As a large part of the workforce is working remotely, more people are logging into employer networks. This increases the need for security.

CRWD offers software that can keep networked devices safe from cyber-attacks. This need is likely to increase as more business takes place through the cloud and other digital channels. Other technology trends, such as the Internet of Things (IoT), will lead to more connected devices and the need for security. In addition, CRWD’s next-generation antivirus, EDR, is poised to gain in the new work-from-home trend.

Since the company focuses on selling subscription-based services, it generates recurring and stable revenue and higher margins. This subscription as a service (SAAS) model is well-suited for its industry, as most businesses working in the cloud are accustomed to this model.

CRWD also has undertaken acquisitions to supplement organic growth and expand its customer base. For instance, in September, the company completed the acquisition of identity theft protection provider, Preempt Security. This should enhance CRWD’s Zero Trust security capabilities.

The company has a healthy balance sheet with strong liquidity and no debt. As of the most recent quarter, its cash balance was $1.1 billion, up from $834 million in the same quarter last year. CRWD also has a healthy current ratio of 1.9.

The stock is rated a “Strong Buy” in our POWR Ratings system. It holds a grade of “A” for Trade Grade, Buy & Hold Grade, and Peer Grade. While the stock has seen a strong run this year, the company has a bright future and buying it on dips makes sense. 

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CRWD shares rose $0.13 (+0.08%) in after-hours trading Wednesday. Year-to-date, CRWD has gained 233.21%, versus a 15.61% rise in the benchmark S&P 500 index during the same period.

About the Author: David Cohne

David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...

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