Shares of high-growth cybersecurity company CrowdStrike (CRWD) have fallen over 9.5% today to close trading at $54.52. According to MarketWatch, Citi (C) analyst Walter Pritchard initiated coverage on CRWD with a “sell” rating and a target price of $43.
Pritchard noted, “While CrowdStrike’s recent growth has generated a lot of excitement, we see its market opportunity largely pegged to the end-point security market, where peak leadership share has been in the neighborhood of ~10%.” He continued, “We see expansion into adjacencies (like EP management and cloud workload) as challenging as they are crowded already.”
MarketWatch reported that Pritchard also initiated “buy” ratings on Ping Identity (PING) and Okta (OKTA). While Ping stock is up 1.3%, Okta has returned -0.4% today. Eighteen analysts are covering CrowdStrike stock, and Pritchard has the lowest target price among them.
These analysts have an average price target of $86.20 for CRWD, with 11 “buy” recommendations, five “hold” recommendations, and one “sell” recommendation.
CRWD stock is trading 47% below its 52-week high
CrowdStrike stock has lost almost 50% of its market value since August. Its stock has been impacted by a volatile broader market, a sell-off in overvalued tech stocks, and the analyst downgrade.
CrowdStrike reported sales of $250 million in fiscal 2019 (ended in January). Analysts expect its sales to rise to $450 million in 2020, $642 million in 2021, and $831 million in 2022. Although CRWD could increase its sales at a robust pace over the next few quarters, this growth is decelerating.
The company competes with heavyweights Cisco Systems (CSCO), Check Point Software Technologies (CHKP), Palo Alto Networks (PANW), and Fortinet (FTNT). According to IDC, in the second quarter of 2019, Cisco Systems led the security appliance market with a share of 16.8%. Cisco was followed by Palo Alto Networks, Fortinet, and Check Point Software Technologies at 16.2%, 11.5%, and 10.3%, respectively.
While CRWD might struggle to gain market share in a crowded market, the company might be attractive as an acquisition target. It is valued at $12.3 billion, or 27x its fiscal 2020 sales.
CrowdStrike was a top IPO performer in 2019
CrowdStrike stock galloped toward the $100 mark after reporting solid second-quarter results. CRWD’s sales rose 94% to $108.1 million, while its subscription revenue rose 98%. Its annual recurring revenue increased 104% year-over-year to $423.8 million.
The company added 730 new subscribers in the July quarter. It was identified as a leader in Gartner’s quadrant for Endpoint Protection.
Prior to its pullback in August, CRWD led IPO gains in the tech space in 2019. It continues to outperform companies such as Uber, Lyft, and Slack, which are trading significantly below their IPO prices.
CrowdStrike is still trading over 50% higher than its IPO price of $34. However, the recent analyst downgrade coupled with its premium valuation might concern investors. CRWD is also reporting a non-GAAP loss.