CrowdStrike Stock Up 5% in July – Time to Buy CRWD Stock?
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CrowdStrike stock is up another 5% so far in July after closing last month with an attractive 13% gain after being upgraded by Stifel from hold to buy while receiving a $60 price target hike.
According to the Missouri-based financial services firm, CRWD stock could reach $300 per share as the firm sees a “significant runway” for the share price resulting from an increased volume of subscriptions.
Stifel indicated that feedback from CrowdStrike’s current customers showed a positive trend, with many clients stating their willingness to “extending their CrowdStrike deployments from physical endpoints to non-traditional workloads”.
The June rally seems to have spilled over to July, but traders should be cautious as the technical setup shows weaknesses in the latest positive momentum experienced by CRWD stock.
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CrowdStrike stock – technical analysis
The chart above shows that big volumes pushed the stock above its all-time high of $252 per share last month, with a total of 9.4 million stocks traded on 22 June – the day on which Stifel announced its upgrade – roughly doubling the 10-day average daily trading volume for CRWD.
On the days that followed that single-day uptick, the stock found support at the $252 level – a former resistance that seems to have turned to support now – while yesterday’s 4.9% uptick was also accompanied by above-average trading volumes.
Momentum oscillators at the moment are entering overbought territory, with the RSI currently surging to 71 while the MACD is displaying a significant deceleration in the positive momentum seen by the stock.
Moreover, the RSI posted an equal high despite the price surging to new highs. This results in a bearish divergence in the momentum and it constitutes another signal of weakness for CRWD’s price action.
The combination of elevated trading volumes and overbought signals could result in a short-term pullback in the stock price due to the exhaustion of the latest uptrend.
That said, although the short-term outlook for CRWD appears to be bearish, the mid-term outlook is bullish based on these resistance breaks. This means that traders could wait patiently for a pullback before entering a long position on the stock on the back of these alleged improvements in the firm’s fundamentals and growth prospects.
CrowdStrike stock – fundamental analysis
CrowdStrike revenues have been growing at a fast pace since 2017, with the company managing to push its top-line results from $118.8 million back then to $875 million by the end of last year while the pandemic may have provided what could be a long-lasting tailwind to the firm.
Last year, sales were 82% higher compared to the previous years as more clients adopted CRWD’s cloud-based cybersecurity solutions. Subscription numbers by the end of the year grew at a similar pace than sales, with a total of 9,896 customers currently registered with the firm’s Falcon platform.
Moreover, gross margins have been improving for the past 4 years, moving from 54% in 2017 to almost 74% last year. However, CrowdStrike continues to be a money-losing company, with net losses landing at $92.6 million by the end of the firm’s 2020 fiscal year.
That said, the firm has been able to trim its losses by at least 32% during the period as operating expenses have shrunk as a percentage of sales.
If CrowdStrike continues to trim its operating expenditures in the following years, it might soon swing to profits. That said, at the current market capitalization of $59.88 billion the firm is being valued at 44 times its forecasted sales for this year as per data compiled by Seeking Alpha.
Despite the positive performance of the business in the previous year and its promising growth prospects, most of that growth seems to be priced in and it could be years before investors realize the kind of profitability that would justify the current valuation.
Stifel’s price target for CrowdStrike is among the highest given to the firm by Wall Street analysts while the consensus forecast for CRWD stock currently stands at $261 per share or 5% above today’s price.
Based on these estimates, the upside potential for CRWD seems to be fairly limited due to its stretched valuation. Meanwhile, the downside risk is particularly high at the moment based on the bearish technical setup indicated above.
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