News

Shares of cybersecurity company CrowdStrike (NASDAQ: CRWD) scored a 50.1% gain in the first half of 2024, according to data provided by S&P Global Market Intelligence. The bulk of the stock's gains came last month after the company reported financial results for its fiscal first quarter of 2025 and subsequently got added to the S&P 500.

CrowdStrike stock had a smaller gain when it reported financial results for its fiscal fourth quarter of 2024 back on March 5. During its fiscal 2024, the company grew revenue by 36% to over $2.2 billion and its free cash flow surpassed $900 million. Those were things that investors wanted to see. But weakness from other players in the cybersecurity space had some investors worried about its future results.

On June 4, CrowdStrike laid a lot of concerns to rest by reporting results for its first quarter of fiscal year 2025, ended April 30, 2024. Management had guided for revenue of $906 million, at best. But the company delivered revenue of $921 million, which was a strong 33% jump from the prior-year period.

Another key point here is that CrowdStrike isn't only growing, but it's also profitable as of last year, as seen on the chart below.

CrowdStrike's profitability was one of the things S&P Global was looking at when it made the decision to add it to the S&P 500 index. The move was announced on June 7 and was effective as of June 24.

Who's buying CrowdStrike stock?

Index inclusion creates an interesting situation. Various index funds literally own shares of the component companies. This allows investors' performance to match the market. But when changes are made to the index, the funds have to buy shares of the new components, in this case CrowdStrike.

Therefore, CrowdStrike stock did enjoy a modest boost in demand from index funds in June. Beyond that, index inclusion can bring more attention to a company. It's possible that some investors looked into CrowdStrike and its business for the first time.

What now?

CrowdStrike has been a publicly traded company now for five years and is now a member of the S&P 500 -- I think it's answered a lot of questions regarding the quality and durability of its business. This has allowed investors' confidence to grow and this does have one unattractive side effect.

Trading at a price-to-sales (P/S) ratio of 28, CrowdStrike stock is expensive and more richly valued than most of its peers. It also trades at its highest valuation in two years.

A good company can overcome a high valuation with growth. But I think the higher the valuation, the more willing investors need to be to hold their shares for a long time and allow time for adequate growth. It's crucial to not take a short-term view with CrowdStrike.

Fortunately, everyone agrees that cybersecurity is a large and fast-growing opportunity. That gives this cybersecurity leader better-than-average growth opportunity, which is encouraging.

Should you invest $1,000 in CrowdStrike right now?

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike and S&P Global. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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