CrowdStrike Q1 Earnings Preview: Rising Optimism Leaves Little Room for Error (CRWD)

CrowdStrike shares continue to rise

CrowdStrike Holdings’ continued outperformance (Nasdaq:CRWD) The inventory was nothing short of amazing. CrowdStrike has been leading the platform push in the relatively fragmented cybersecurity industry, supported by its “lightweight single agent.” Architecture.” As a result, it has been instrumental in CrowdStrike’s go-to-market strategy, driving its on-the-ground momentum and expansion. CrowdStrike emphasizes “simplicity and effectiveness” for its cloud-native approach, demonstrating the value of adopting a “single centralized platform” to meet the needs of CrowdStrike customers. CrowdStrike has done this since its inception, which is due to CRWD’s commitment to developing and integrating security modules throughout its platform strategy.

I noted my caution on CRWD stock (hold rating) in my previous article in early March 2024. While I was impressed by CrowdStrike’s execution and notable growth pace, I was concerned about its expensive valuation. Despite my caution, CRWD continued to outperform Standard & Poor’s 500 (SP500) since then, confirming the resilience of CRWD buying sentiment.

CrowdStrike’s fiscal first quarter (FY2025) earnings release. It will be published on June 4. I assess that investors are heading into the upcoming earnings report with clear optimism, as CRWD has risen near its March 2024 highs at the $365 level. In other words, investors are likely betting that CrowdStrike is expected to report another strong earnings performance record, justifying its recent rise.

Analysts are optimistic about CrowdStrike’s first-quarter earnings

Wall Street expects CrowdStrike to report revenue of $904.8 million in the first quarter. It’s closer to the upper end of CrowdStrike’s revenue guidance range. As a result, CrowdStrike is expected to record revenue growth of more than 30% in its fiscal first quarter, which is very notable growth momentum.

Additionally, analysts expect full-year revenue to grow more than 30% for fiscal 2025, reaching $3.98 billion. It’s also closer to the upper end of CrowdStrike’s forecast, suggesting there’s less room for execution errors or mishaps. Wall Street analysts also raised market sentiment toward CRWD as we approach its earnings release. Morgan Stanley (MS) analysts are confident that CRWD could “exceed a $100 billion valuation within the next 12 months.”

I don’t doubt CrowdStrike’s execution capabilities. If anything, Palo Alto Networks’ (PANW) platform push validated CrowdStrike’s value proposition. Despite this, the relatively fragmented nature of the cybersecurity industry means that the market is still evolving rapidly, which implies relatively high implementation risks.

Furthermore, Palo Alto Networks has made progress on its strategy, as shown in PANW’s recent earnings release. Therefore, more intense competitive risks should not be ruled out, as CrowdStrike’s main competitors take a more aggressive approach to potentially offering lower prices than their premium offerings.

Given its leadership position in endpoint security, CrowdStrike is not expected to see a weakening of its platform strategy in the near term. However, CRWD’s increased optimism has reduced CrowdStrike’s margin for error. Therefore, weaker-than-expected execution could result in significant pain for investors.

Valuation of CRWD stock is very expensive

With CRWD receiving three grades from the “A” range from Seeking Alpha’s Quant, it seems foolish to be bearish on CRWD. CRWD’s strong ‘B+’ earnings revisions grade underscores CrowdStrike’s impressive execution, leading to earnings estimates being upgraded.

However, the CRWD rating grade of “F” should not be ignored. CRWD’s forward adjusted P/E of 89x is well above the technology sector average of 23.7x. Furthermore, CRWD’s forward adjusted PEG ratio of 2.2 confirms my observation that market optimism about the stock’s continued rapid gains has likely priced into its valuation. In other words, unless you have a firm belief that CrowdStrike’s management can deliver another strong raise in its next report, even a slight disappointment could lead to a potential rating drop.

Is CRWD stock a buy, sell or hold?

The CRWD price chart confirms its bullish slope, indicating that there is no need to significantly reduce exposure yet to protect previous gains. However, CRWD’s buying momentum seems likely to fail again below the $365 level, which preceded the significant downward swing in March 2024.

As a result, investors should brace for further impact, as buyers do not appear ready to push CRWD stock higher from here, necessitating caution. Buyers looking to add exposure on a potential pullback should find potential opportunities above the $270 levels or $240 levels (bear market lows). Given CRWD’s expensive valuation, we shouldn’t underestimate the possibility of reaching these levels if CrowdStrike’s management is disappointing on its future guidance.

Rating: Keep waiting.

IMPORTANT NOTE: Investors are reminded to conduct due diligence and not to rely on the information provided as financial advice. Consider this article to complement your required research. Please always apply independent thinking. Note that the classification is not intended to specify a specific entry/exit time at the time of writing unless otherwise stated.

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