Thoughts on Crowdstrike bottoming out
I know Crowdstrike is like catching a falling knife right now. Since last week the stock has dropped 18% to $254. Not a major sale but at a certain point the stock becomes attractive again.
My main question is when is a good time to start building a small position? What are some red and yellow flags to look out for?
The obvious ones are potential lawsuits/liabilities from F500 companies. Which is very hard to price. So I do see the stock going below $200 over the next six months. Maybe creating an interesting opportunity to also write calls and buy LEAPs. Either way, I need help working through worst-case scenarios for the stock price.
Right now I think the EBITDA multiple is way too rich (165x). Since the stock recently achieved profitability, I think any potential lawsuits will wipe out near-term profits. Which means the stock will be in the red for the next 2-3 quarters.
High level I think an entry price can be around $180 before year-end. My bullish reasoning for the stock is that last week was a software glitch, not a security incident. Black swan events like this happen to even the best companies. But if Crowdstrike encountered a cybersecurity attack, this stock will drop by 50% and be forgotten.
Let me know what you think the downsides might be and how you would price them.
Disclosure: no positions in CRWD
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MACKGforEver : I'll be honest I sold as soon as I heard the news. But I had made a small amount. I bought like 8 shares at $190. At the time CRWD seemed like a no brainer and the leader in the space. I think they still are a leader but will be under a microscope. Their outage was huge. I put that money into a cyber sec ETF. It's a space that will continue to be important and grow, and I don't think I can pick the winner so easily again.
101667813 : The event was not a simple software glitch. It highlights a very poor software quality control process, if there was any at all. It makes me question the conduct of the management in the company. So, absolutely no position until something changes.
Money Thrill : I really don't know, but Microsoft said it continued to have confidence in CrowdStrike and would continue to support them? And I have heard from computer specialists that it is not easy to simply change cyber company? So i waith and see ... Don't forget that people FORGET QUICKLY in this volatile world![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
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101667813 Money Thrill : You are correct in saying that people forget quickly. Msft doesn’t have much skin in this incident, their bottom line wasn’t hurt. Those who got bitten were airlines, hospitals, government agencies etc. But my point is that when the company has a rotten core, another similar incident will happen again, sooner or later. Apparently the CEO was CTO of McAfee which also caused a massive outage in 2010. I wonder why.
Money Thrill 101667813 : Yes, i know that there was also a incident... so that is tricky? A good CEO is everything, like a good woman or housewife![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
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101667813 : It is tricky indeed. I personally have zero confidence so I am not buying CRWD, but everyone else can make their own judgement
Ken Griffin Charity : You will find that any software company has detailed end user license agreements that protects them from any liability in the event of such system failures, so lawsuits are of minimal risk.
The main thing to look out for is contract renewals and Crowdstrike’s ability to attract new customers after the massive blow they’ve suffered to their reputation. But even then, Crowdstrike was always the premier EDR provider, with its closest competitor being Microsoft itself. And that’s saying something considering Microsoft’s EDR solution is terrible in comparison.
The better question is: why invest in this company at all with its uncertain future, when there are so many solid companies out there that don’t share the same risk?
Konvinced : I keep seeing people mention that they're protected by EULA. Many companies lost billions of dollars and best believe they will find loopholes as many other companies who have sued and come to settlements even though they had EULA in place. for example, McAfee, which the Crowdstrike CEO was the CTO there faced a similar incident, had to settle their lawsuits after an update bricked Windows PCs.
All this to say don't think it's over and they pose a high risk to investors. There's a chance they could bounce back but they have a long road as many companies will weigh what to do as not only trust was lost, more damage was done by Crowdstrike than whom they were supposed to protect the companies from.