Bad news for investors who own CrowdStrike (NASDAQ:CRWD): This morning, Piper Sandler cut its price target on your stock by 17%, to $250 a share.
Good news for CrowdStrike shareholders: Piper’s $250 price target still leaves room for CrowdStrike shares to rise 32% this year, and as of 2:45 p.m. ET, CrowdStrike stock is up 5.7% in response.
And the best news of all for CrowdStrike investors? Piper Sandler recognizes that fact, and is maintaining its overweight rating on the shares — and not just Piper Sandler, either, because just yesterday, Wells Fargo initiated coverage of CrowdStrike with an overweight rating of its own.
In fact, in initiating its coverage at a $275 price target ($25 more than Piper Sandler’s), Wells Fargo called CrowdStrike “one of the most comprehensive [cybersecurity] platforms in the industry,” and named it a “top pick for 2022,” as reported yesterday by TheFly.com. And in its separate note this morning, Piper Sandler echoed the sentiment.
Despite cutting its price target on the shares due to anticipated “compression in high-multiple stocks” (says StreetInsider.com), Piper argues that CrowdStrike boasts one of the “best of breed platforms amid a rapid increase in cyber threats” and occupies a “favorable” position in the cybersecurity marketplace, with growing “wallet share from customers.”
Heading into 2022, Piper sees a “perfect storm” brewing for companies like CrowdStrike, as cybersecurity threats only increase. What’s more, as the market grows Piper also expects CrowdStrike to garner a greater share of the growing market through “displacement” of existing “legacy” providers.
To keep track of how well CrowdStrike is living up to its potential, Wells Fargo suggests investors focus on the company’s annual recurring revenue. In that regard, the recurring portion of CrowdStrike’s revenue stream grew 67% year over year in the most recent quarter — four points better than the company’s overall 64% revenue growth.
Although not yet profitable as GAAP measures such things, CrowdStrike generated more than $430 million in positive free cash flow over the past year, yielding about a 95 times multiple to its $41.1 billion market capitalization. That may sound expensive — but if CrowdStrike can keep growing at 64% (or 67%) annually, I think this growth stock just might be worth the price.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.