CrowdStrike Holdings: eight reasons to be bearish

VSRowdStrike Holdings, Inc. (CRWD) provides a cloud solution for next-generation endpoint protection. It offers cloud modules on its Falcon platform through a SaaS subscription model. The company offers its services in the United States, Australia, Germany, India, Romania and the United Kingdom. The company was founded in 2011 and is headquartered in Sunnyvale, California.

CrowdStrike’s shares were little changed in 2021, with losses of 2.04% as of Dec.31, 2021, with a closing price of $ 204.75. I am bearish on CRWD stock. I mention eight main reasons for concern below, as well as one very positive factor about this cybersecurity stock.

8 reasons to be bearish on CRWD stocks

The first reason is the most obvious: CrowdStrike remains unprofitable based on generally accepted accounting principles (GAAP), with net losses widening in the first nine months of fiscal 2022 from the net loss of 92 , $ 63 million for fiscal 2021. In the first to three quarters of fiscal 2022, CrowdStrike reported a net loss of $ 161.37 million. CRWD stock earnings continue to be volatile, a trend that will most likely be present in 2022.

The second reason is that CrowdStrike’s shareholders have been diluted over the past year, with the total number of shares outstanding increasing 3.7%.

Third, annual revenue growth has declined over the past three consecutive fiscal years. In fiscal 2018, the company recorded revenue growth of 125.14%, which decreased to 110.37%, 92.70% and 81.64% for fiscal 2019, 2020 and 2021 respectively. For a growth stock, this slowing of revenues is a very important negative factor.

Fourth, the operating result (EBIT) is negative. CrowdStrike’s annual operating profit for 2021 was $ -0.093 billion, down 36.65% from 2020; annual operating profit for 2020 was – $ 0.146 billion, an increase of 6.72% over 2019; and annual operating profit for 2019 was $ 0.137 billion, an increase of 4.13% over 2018. For the quarter ended October 31, 2021, reported operating profit was -0.040 billion dollars, an increase of 66.66% year-over-year.

The company needs to achieve positive EBIT to improve its business and financial performance and focus on net profitability in the near future.

Fifth, CrowdStrike significantly increased its debt level in fiscal 2021, reporting long-term debt of $ 770.02 million. The debt to equity ratio jumped to 0.8465 in fiscal 2021. In previous years, the company had no long-term debt.

Sixth, the ROE ratio had deteriorated to -23.47% at the end of October 2021. The figure of -21.85% for the ROE at the start of January 2021 shows how low CrowdStrike’s profitability is.

Seventh, another key measure, EBITDA is negative for fiscal years 2017-2021 and in the first nine months of 2021. This indicates that for the quarter ending April 30, 2021, reported EBITDA was (10, $ 45 million), which worsened to ($ 25.93 million) the following quarter, ending July 31, 2021.

The eighth reason is the very high valuation. On a relative valuation, CRWD stock is overvalued based on its PB ratio (49.3x) compared to the US software industry average (5.7x). The Price / Sales ratio of 36.23 for December 28, 2021 is considered too high considering the company is losing money.

There is, however, one key metric that I love, and it’s very positive for CrowdStrike Holdings. The company shows a positive free cash flow trend for FY20 and FY21. FY20 $ 6.95 million increased 4,471.81% to $ 301.01 million in fiscal 21. This generation of positive cash flow is evident in the first three quarters of 2021, and net operating cash flow is also positive for the last five consecutive quarters.

The Taking of Wall Street

When it comes to Wall Street, CrowdStrike Holdings has a strong buy consensus rating, based on fifteen buy ratings, two holds and one sell rating assigned in the past three months. Street CrowdStrike Holdings’ average forecast of $ 282.18 implies upside potential of 37.8%.

Disclosure: At the time of publication, Stavros Georgiadis, CFA does not have any position in any of the titles mentioned in this article.

Disclaimer: The information in this article represents the views and opinions of the author only, and not the views or opinions of TipRanks or its affiliates. Read the full disclaimer>

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Source link

About Aldrich Stanley

Aldrich Stanley

Check Also

WEIS Radio | Local and regional news, sports and weather “Recent County Audit Report Shows Two Findings, Says Estates Judge Tim Burgess

The Cherokee County Commission recently received the official audit report for the fiscal year October …