There’s always a price to pay, particularly if a glitch in your software has just been responsible for a massive global IT meltdown.
No prizes for guessing who we’re referring to here. CrowdStrike (NASDAQ:CRWD) has been hogging the headlines since a bug in an update for its software wreaked havoc on Windows-based systems last week, resulting in the dreaded Blue Screen of Death (BSOD) in corporate systems all over the world.
The result has been a stock that has shed 21% since the news broke, which begs the question for investors looking for bargains: is now the time to be loading up?
No, is the short answer provided by Guggenheim’s John Difucci, a 5-star analyst rated in the top 1% of the Street’s stock pros.
In fact, due to “likely resistance to new deals in the near-term as a result of anticipated fallout from the apparent quality assurance issue that caused a massive disruption of IT systems across the globe,” Difucci has downgraded his CRWD rating from Buy to Neutral while taking his prior $424 price target off the table. (To watch Difucci’s track record, click here)
Difucci also cites “risk in F4Q consensus estimates, especially ARR” as an additional factor in the downgrade while bringing up the stock’s lofty valuation as another reason for “stepping away for the time being.”
That apparently will please a certain group of investors, who Difucci says have been criticizing him for a while now for reiterating the bullish case for CrowdStrike despite a multiple that “seemed to defy gravity relative to others.”
“But our response was always the same,” the analyst goes on to say. “Sometimes, there’s significant incremental value in high multiple stocks, especially if a company has a track record of impeccable execution making an even better future at least plausible, if not likely.”
And CrowdStrike boasts such a record. It has tackled the apparent opportunity in next-gen endpoint security in an impressive manner and significantly expanded it via the growth of its tech offerings, now boasting 28 modules, and an aggressive push into new market segments, particularly the down-market.
By doing that, it has also fundamentally transformed the characteristics of what can be described as its core market, achieving “best-in-class gross retention rates and rejuvenated growth.” That said, the disorder that CrowdStrike has caused worldwide will likely have negative effects on its business, even if these effects are temporary.
“The company’s response to the issue it caused was impressive, but nevertheless, it caused significant disruption to businesses (and people) across the world,” Difucci summed up. “The restoration of its reputation may take more time and will likely affect new business signings at least in the near-term.”
While 5 other analysts now join Difucci on the sidelines with Hold ratings, with an additional 28 Buys vs. 1 Sell, the stock still keeps its Strong Buy consensus rating. Moreover, the $378.70 average price target indicates shares will climb ~41% higher over the coming months. (See CRWD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
