- Like other tech companies, Crowdstrike has been slammed for higher rates
- The company has been using debt for growth; higher interest rates could hurt the strategy
- It raised its earnings and revenue guidance for the third quarter and full year
Cyber Security Expert Crowdfunding (NASDAQ: CRWD) It’s had a fantastic 2020 and 2021, but like other tech stocks, the former growth darling has been languishing.
But much of the decline was due to higher interest rates, as well as a correction in the broader market.
What is the long-term potential of the stock?
First, a little background: Crowdstrike went public in June 2019 for $34. Shares closed at $161.28 on Thursday, so there’s no immediate risk that Crowdstrike will join the ranks of newly public tech companies below its IPO price. (Yes, stocks going public in 2019 are still new; in fact, companies that have IPOs in the past 10 to 15 years are very much looking forward to a big rally in a bull market.)
It’s true that cybersecurity isn’t an industry that’s likely to shrink anytime soon, but when interest rates rise, the tech sector tends to suffer. That’s because tech companies and other growth companies tend to reinvest profits in high-potential projects, rather than returning money to shareholders in the form of dividends. Higher interest rates could hamper that ability, meaning the growth outlook could slow.This is especially bad for stocks high price-earnings ratioyou see often in tech stocks.
Use leverage to grow
Crowdstrike’s long-term debt was $740.261 million. It’s not uncommon for fast-growing tech companies to use leverage to finance growth. Higher interest rates also mean higher borrowing costs, which could also dampen growth. In fact, the stock fell more than 5% this week after the Fed raised rates.
However, this is good news for the company. Earnings for the second quarter of fiscal 2023 on Aug. 30 were $0.36 per share on revenue of $535.2 million. MarketBeat Earnings Data Shows that Crowdstrike has beaten revenue estimates in every quarter since it went public. It has topped the list of earnings views in every quarter since its first public offering.
Revenue has grown at a triple-digit rate in each of the past eight quarters, while revenue has grown at a double-digit rate.
Crowdstrike Lifting Guide
The company raised its third-quarter guidance. It now expects earnings per share in the range of $0.30 to $0.32, beating analysts’ expectations.
It guided revenue between $569.1 million and $575.9 million, missing consensus estimates. Still, this would mark a significant increase from a year earlier.
Crowdstrike expects full-year earnings of between $1.31 and $1.33 per share, roughly double what it earns in fiscal 2022.
In the cybersecurity industry, Crowdstrike has some competition in terms of price action.
Small Network Security Name
Absolute Software (NASDAQ: ABST), a small hat The development and sale of software for managing and securing devices, applications, data and networks for enterprise customers has grown 36.19% in the past three months and 17.40% year-to-date.
The company is also the most recent IPO, going public in October 2020. However, with a market cap of just $550.9 million, it’s not like institutional quality stocks like Crowdstrike, Palo Alto Networks, or Fortinet. With the exception of funds focused on small caps, larger owners tend to favor larger companies that are more stable and have broader analyst coverage.
Sometimes very small companies from all industries become price leaders. This is due to a number of factors, including new and motivated agile management teams to pursue growth.
In the cybersecurity industry, Invasion (NASDAQ: INTZ) is an example of this phenomenon. The stock has gained 21.29% in the past three months and is up 30.81% so far this year. But with a market cap of just $86.9 million, it’s not an institutional quality stock either.
Unless you’re specifically looking for small-cap exposure that fits in many situations, you’ll generally find more stable opportunities in the larger companies within the industry.