Weakness May Be an Opportunity for CrowdStrike Stock

Shares of CrowdStrike Holdings (CRWD) fell from a high of about $785.66 to a recent low of $617.74, even after posting strong earnings and guidance. EPS of $1.10 beat estimates by three cents. Revenue of $1.39 billion, up 26.4% year-over-year (YoY), beat by $30 million. The company also raised its revenue guidance to a range of $1.43 billion to $1.44 billion. It also guided for EPS of $1.16 to $1.17, which is above the estimates of $1.15. It also announced a 4-1 stock split, which will take effect after the market closes on July 1.

Annual recurring revenue (ARR) even increased 24% to $5.51 billion, with $255.8 million in net new ARR for the quarter. The company also raised its full-year ARR growth rate to 29% thanks to artificial intelligence headwinds. Still, despite strong numbers, the stock gapped lower.

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Annual Recurring Revenue Wasn’t Good Enough

For a company like CrowdStrike, ARR is a key indicator of future revenue. That’s because it measures the value of subscription contracts expected to recur over the next year. And while CrowdStrike’s ARR continued to grow at an impressive rate, analysts argue that its numbers did not exceed the already elevated expectations priced into the stock. In fact, analysts were looking for a bigger ARR number than what was reported. Analysts at Jefferies, for example, argued that while CrowdStrike’s recurring revenue growth of $6 million beat estimates, the beat was not large enough. With that, the firm also lowered its price target to $760 from $775 a share while reiterating a “Buy” rating.

“The firm noted that annual recurring revenue (ARR) growth in Q1 accelerated to 24% year-over-year, marking a third consecutive quarter of faster growth. However, CrowdStrike’s $6 million ARR beat versus consensus fell well short of the $15 million to $29 million upside delivered in each of the previous four quarters, the firm said,” added StockTwits.com.

Strong Fundamentals Remain Intact

Despite the pullback, analysts are still bullish on the stock long-term. Goldman Sachs reiterated its “Buy” rating on CrowdStrike following the report, with a price target of $726. TD Cowen reiterated its “Buy” rating with a price target of $700. Barclays reiterated an “Overweight” rating with a price target of $675.

That’s because the company continues to benefit from growing cybersecurity spending as companies adopt AI technologies and seek better protection against more sophisticated threats. Management highlighted strong demand for its Falcon platform and continued momentum across its broader security offerings. The company also raised its full-year ARR forecast to between $6.53 billion and $6.56 billion while boosting revenue and earnings guidance.

What Do Analysts Say About CRWD Stock?

Of the 50 analysts covering CRWD stock, 34 have a “Strong Buy” rating, three have a “Moderate Buy” rating, 11 have a “Hold” rating, and two have a “Strong Sell” rating, making for a consensus rating of “Moderate Buy.” The mean target price of $723.74 implies a potential upside of 11% from current levels. The high price target of $825 implies as much as 26% possible growth from here. The fundamentals are still moving in the right direction—double-digit revenue growth, expanding ARR, and improving full-year guidance all point to continued demand for its cybersecurity products. Recent weakness may be an opportunity for long-term buyers.

On the date of publication, Ian Cooper did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com