Sticking With This CrowdStrike Price Target as Firm Faces ‘Largest Market Opportunity’ Ever

I’m going to enjoy this one. Probably because I had some naysayers when it came to software in general and cyber-security specifically. Truth be told, I may have had a tiny doubt in the back of my head at times as well. No doubts. No more.

Core Sarge-folio holding CrowdStrike Holdings (CRWD) released the firm’s fiscal second quarter financial results on Wednesday evening. For the period ended July 31, CrowdStrike posted an adjusted EPS of $0.31 (GAAP EPS: $0.01) on revenue of $1.471 billion. Both the top- and adjusted bottom-line results beat Wall Street while that sales print was good enough for year-over-year growth of 25.6%.

While those results are excellent, they do not tell the full story. The real story for those in the software/cybersecurity subscription business in annually recurring revenue (ARR). For the quarter reported, CrowdStrike delivered a net new ARR of $333 million (+51%). The firm ended the period with ARR associated with its Flacon Flex licensing/procurement platform at $2.29 billion (+101%). It has become quite easy for me (in my opinion) to see that demand for cybersecurity has never been higher and that CrowdStrike is a “best in class” provider. Yes, despite fears earlier this year that AI could wipe out nearly all enterprise software businesses.

CEO and founder George Kurtz commented in the press release:

“Q2 was the best quarter in CrowdStrike’s history. Delivering record Falcon Flex results, record net new ARR, and accelerating growth—the Falcon is soaring. We’re raising our full year fiscal 2027 net new ARR growth outlook by 630 basis points. The Mythos moment translated into mass-market acceptance that AI adoption needs security, and that’s CrowdStrike. Every enterprise will run on AI, and securing it is the largest market opportunity in our history.”

Operations

As sales grew 25.6% to $41.471 billion, the cost of those sales increased 21.4% to $374 million. That left a gross profit of $1.097 billion (+27.6%) on a gross margin of 74.6% (up from 73.6%). Total GAAP operating expenses grew 17% to $1.13 billion, leaving a GAAP operating income/loss of -$33.232 million (up from -$105.457 million).

After accounting for interest, other income and expenses as well as taxes, GAAP net income/loss printed at $5.306 million, up from the year-ago comparison of -$70.153M million. That works out to a fully diluted GAAP EPS of $0.01, up from -$0.07. Once adjusted primarily for stock-based compensation expense, net income increased 35.7% to $322.902 million. That put the firm’s adjusted EPS at $0.31, up from $0.23.

Guidance

For the current quarter, CrowdStrike is projecting revenue of $1.52 billion to $1.53 billion, bringing the low end of the range above the $1.51 billion that Wall Street was looking for. Adjusted EPS is seen at $0.31, which is in line with expectations. The firm also sees ARR reaching $6.184.4 billion to $6.188.4 billion.

For the full fiscal year, the firm is predicting total revenue of $5.99 billion to $6.01 billion. That’s well above the consensus view that was for $5.94 billion. Adjusted EPS is projected at $1.25 to $1.26, again bringing the low end of the range above the $1.23 that Wall Street had hoped for. ARR at year’s end is seen at $6.603 billion to $6.611.9 billion. This guidance is the primary reason for the firm’s run on Thursday morning.

Fundamentals

For the period reported, CrowdStrike generated operating cash flow of $530.268 million. Out of that number came $152.861 million worth of traditional capex spending, capitalized internal use software and purchases and proceeds from deferred compensation investments. This left free cash flow of $377.407 million (+33.1%). CrowdStrike does not return capital to shareholders.

Turning to the balance sheet, CrowdStrike ended the period with a cash position of $5.014 billion and current assets of $6.955 billion. Current liabilities add up to $4.43 billion, of which $3.497 billion is labeled as deferred revenue which we know is not a true financial obligation. That puts the firm’s (adjusted for those deferred revenues) current ratio at a very muscular 7.45.

Total assets amounts to $12.025 billion, of which 21% is labeled as either goodwill or other intangibles. That is not enough to concern me. Total liabilities less equity comes to $6.885 billion, of which another $1.345 billion is in non-current deferred revenues. The firm has a long-term debt load of $746.216 million, which is covered almost seven times over by the cash position. There is no short-term debt on the books. To say that this balance sheet is a magnificent work of art would be an understatement.

Opinion

Obviously, I am excited. I came in long the shares. CRWD is a top-five position in the portfolio and has been for a very long time (with the brief exception of when I had to liquidate everything and rebuild my positions during my divorce). The stock is up 17% mid-morning on Thursday. Am I going to take some profits? Let’s have a look:

Earlier this month, I gave readers a $285 target price for this stock. Here we see a rising-wedge pattern of bearish reversal that was a threat to the stock a couple of weeks ago. The stock did break down from that pattern and that break down has now failed. The stock lost and has now regained its 50-day SMA as well as its 21-day EMA. This will keep both the pros and the swing crowd from jumping ship while forcing the ones that panicked to recommit. We still face the risk of a double top should the rally come to halt here, so that is something to watch.

Relative strength is on the side of the bulls while not even being close to approaching technically overbought levels. Below the chart, the daily MACD, which was a weakness, is regaining upside momentum. Should the histogram retake the zero-bound and should the 12-day EMA retake the 26-day EMA, the algorithmic reaction would be to amplify today’s rally further.

Target Price: $285 (reiteration)
Pivot: $228 (August high)
Add: Down to 50-day SMA (around $195)
Panic: New august low

At the time of publication, Guilfoyle was long CRWD equity.