Is CrowdStrike a bad buy?

Bad press can drag down a stock, but that doesn’t mean it will stay down forever. In some cases, buying a stock when it’s in the news can set you up for bigger gains down the road. As long as the underlying business isn’t in bad shape, a sell-off due to bad press can be a great buying opportunity.

CrowdStrike Holdings (CRWD -1.03%) could potentially be just such an opportunity. In July, it inadvertently triggered what some have described as the largest IT outage in history, bringing down millions of Windows computers worldwide. The outage, caused by the deployment of a faulty software update, affected multiple industries and had a wide-ranging impact on consumers and businesses.

CrowdStrike stock fell sharply as it became clear the company was to blame. It rebounded somewhat, but before the crash, it was up more than 40% in 2024. CrowdStrike’s annual profits now stand at a much more modest 8%. Could this be a good time for investors to buy tech stocks at a discount?

CrowdStrike’s business continues to grow, but the company has adjusted its forecasts

On Aug. 28, CrowdStrike reported fiscal second-quarter results, which continued to look strong. For the period ended July 31, revenue rose 32% year over year to $963.9 million, and operating income was $13.7 million, an improvement from an operating loss of $15.4 million in the same period the previous year.

The caveat, however, is that the July 19 outage occurred too close to the end of this fiscal quarter for its effects to have had a significant impact on the report. There are signs, however, that the company has already felt the effects, as management has revised its guidance for the year.

For fiscal 2025, which ends in January, CrowdStrike is forecasting revenue of about $3.9 billion, down from the roughly $4 billion it had forecast a few months earlier. The more notable change was in net income. CrowdStrike is now forecasting adjusted revenue of between $774.7 million and $783.9 million, down from its previous forecast of between $890.1 million and $916.5 million.

The big test will come in later quarters when customers will have to decide whether to stick with CrowdStrike.

CrowdStrike stock could fall, but it won’t be cheap

Although CrowdStrike stock is down more than 10% over the past three months, the stock was trading at extremely high valuations before the crash; the sell-off may have been overdue. Based on analyst forecasts, CrowdStrike still trades at 76 times expected future earnings. By comparison, rival Palo Alto Networks is trading at a forward profit multiplier of 57.

While neither of these multiples are cheap, it would be hard to justify paying a higher premium for CrowdStrike than for Palo Alto right now. Analysts could also eventually lower their earnings expectations for CrowdStrike as they learn more about the fallout. If they do, the company’s already high price-to-earnings multiple will become even more inflated.

Investors should take a wait-and-see approach to CrowdStrike

CrowdStrike’s growth rate has been impressive, and if the stock were more favorably valued, it might seem like a good investment. However, there’s not much margin of safety with the stock as it stands. Even if CrowdStrike’s business rebounds in the long run, investors should expect a discount to compensate for the uncertainty, so I’d suggest waiting on the sidelines. While the stock may have fallen in value, it’s still not worth buying at the current price.