CrowdStrike Holdings CRWD released its fiscal first-quarter earnings report on June 4. Here’s Morningstar’s take on CrowdStrike’s earnings and stock.

Key Morningstar Metrics for CrowdStrike

• Fair Value Estimate: $300.00
• Morningstar Rating: 3 Stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of CRO Wd Strike’s Q1 Earnings

• CrowdStrike’s results were again incredible. The company continues to fire on all cylinders, and its execution remains incredibly strong.
  
• CrowdStrike’s growth is driven by its success in its newer product categories, such as SIEM, identity, and cloud security.
  
• Over the last year or so, the security space has bifurcated, with CrowdStrike and Palo Alto
  Networks PANW emerging as the clear favourite. If investors think CrowdStrike will be a massive security winner, they may want to own the stock even when it’s trading at 20x sales.
  
• From our vantage point, CrowdStrike’s valuation is stretched. It’s the most expensive software business in the world, with a higher enterprise value over the next 12 months than any other company. It doesn’t have any room for error.
  
• We think CrowdStrike is overvalued. At the same time, we’d recommend investors look at the stock if there’s a pullback. From a pure quality perspective, the company is incredible.

Fair Value Estimate for CrowdStrike

With its 3-star rating, we believe CrowdStrike’s stock is fairly valued compared with our long-term fair value estimate of $300 per share. We forecast CrowdStrike’s revenue to see a 29% compound annual growth rate over the next five years. We expect the firm to continually expand its client base while maintaining strong upselling performance with existing clients.

In our view, endpoint security is a key area of enterprise security spend, and we expect it to remain important for clients in the coming years.

CrowdStrike’s “land-and-expand” model has shown great success, with the firm consistently expanding sales from existing customers by selling them additional modules or protecting more endpoints per customer. We expect this upselling velocity to persist as the ever-changing threat landscape provides strong momentum.

Economic Moat Rating

We believe CrowdStrike has a narrow moat owing to strong customer switching costs associated with Falcon, its endpoint security platform.

We view endpoint security as vital to any modern enterprise’s IT security infrastructure; according to our estimates, it’s set to be around a fifth of the overall cybersecurity spending by 2025. CrowdStrike has emerged as a clear market leader here.

Additionally, we believe the value of CrowdStrike’s platform can be gleaned from the firm’s impressive net retention metrics and strong customer growth.

With increased adoption of endpoint security platforms, as enterprises switch away from legacy antiviruses, as well as a sticky platform ensuring the firm can land and expand its customers, we believe CrowdStrike is more than likely to generate excess returns over the next 10 years.