Why CrowdStrike Stock Surged 13.1% in June

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© Provided by The Motley Fool Why CrowdStrike Stock Surged 13.1% in June

What happened

Shares of cybersecurity disruptor CrowdStrike (NASDAQ: CRWD) rose 13.1% in June, according to data from S&P Global Market Intelligence. The company reported its typical strong earnings results on June 3, while one analyst gave a very bullish upgrade later in the month.

Also important, growth stocks like CrowdStrike broadly rebounded in June, as fears of runaway inflation, which took hold in April and May, seemed to abate.

© Getty Images A young worker in a dark office in front of computer monitors.

So what

For its fiscal first quarter ended April 30, CrowdStrike reported strong 70% revenue growth, a 73% subscription revenue increase, and a 74% boost in annual recurring revenue, which ended the quarter at a $1.19 billion run-rate. Gross margins ticked up to 79% from 78% a year ago. The company is still unprofitable, but that’s because it is investing as much as it can in its growth opportunity, which remains quite large.

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Just how large? Well, Brad Reback, an analyst at Stifel, thinks the already-optimistic market is still underestimating CrowdStrike’s upside. In a mid-month upgrade, Reback changed his rating on CrowdStrike from hold to buy, while raising his price target from $240 to $300. Reback and his team had conducted a survey of CrowdStrike customers and found that many were looking to consolidate and extend their deployments with the company. Not only that, but Reback also thinks CrowdStrike has the capability to grow its current customer count of 11,240 by a multiple of 10 over time.

Now what

From last year’s Sunburst attack, to the more recent Colonial Pipeline hack, to this past weekend’s ransomware attack on IT management software firm Kaseya, concerns over cybersecurity aren’t going away anytime soon. In fact, they’re on the rise. In that light, best-in-class cybersecurtity companies should have a long runway for growth. With its novel artificial-intelligence and cloud-based architecture, CrowdStrike looks to be one of those winners.

It appears the only things that could derail CrowdStrike’s run would be an external economic shock or rising interest rates. But after surging earlier this year, the 10-year Treasury yield has declined significantly from its late March highs, signaling that the bond market isn’t overly worried about runaway inflation that could harm high-multiple stocks like CrowdStrike. So barring an unexpected rise in long-term interest rates, investors shouldn’t be afraid to stick with this Motley Fool favorite.

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Billy Duberstein owns shares of CrowdStrike Holdings, Inc. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends CrowdStrike Holdings, Inc. The Motley Fool has a disclosure policy.

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