What To Do With A Problem Like CrowdStrike?

What To Do With A Problem Like CrowdStrike?

Summary

CrowdStrike stock is the poster child for everything the market claims to hate right now. High growth, negative earnings per share, huge revenue multiple.

At a company level, financial fundamentals are weakening and its competitive position slowly being eroded.

And yet the stock is showing every sign of moving up during the tech wreck.

In the battle of charts vs. reality – which should you trust?

This idea was discussed in more depth with members of my private investing community, Growth Investor Pro. Learn More »

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Generally in our work we tend to trust stock charts more than we do the news in front of us. Because charts encompass the sum of all fears and greediness and one way or the other reflect all inputs into the emotional decisionmaking of humans and the algorithms programmed by the self-same wetware creators. Charts can be wrong of course but they focus on the output – price – not the input – the news – and that in a nutshell is why we value technical analysis when carried out with some skill.

Technicals alone, of course, are not enough. A fat pitch investment or trade comes along when you have a stock poised to move in your preferred direction on the chart, together with company fundamentals pointing in the same degree. Taking a short position? You want a chart that is or is about to be pointing down, together with weakening fundamentals. Long? Improving fundamentals and a chart that is or about to be pointing up. And of course you want to be early in the chart movement, not just chasing the puck that everybody else almost got to already.

CrowdStrike ( CRWD ) is one of the toughest calls right now in our view. This is a stock which has been very good to us in staff personal accounts and in our Growth Investor Pro Seeking Alpha subscription service over the last two years or so. Very good to us. We first bought in and called a Buy at around $90/share – which felt like a yikes kind of price at the time, it has to be said – and in the service we called a top as the stock approached $300. Subscribers who followed us in those calls will have achieved solid gains with the stock. In staff personal accounts we sold most of our holdings as the stock rose, keeping only a modest position for the future, all flagged ahead of time in our service as always.

The stock has sold off with other tech names in the last three months or so, and as with all these high growth names the question is, should one buy back in now, or not?

Well, let’s look at the bull case first. The company is the point-solution leader in a key segment of the cybersecurity market, being endpoint protection. If you don’t live in a cyber rabbit hole, “endpoint protection” just means the company’s software is focused on protecting things right at the end of the network cable or wireless connection, such as your own computer. (Other cybersecurity names are core network element focused.) If you are old and wizened like us, you could think of CRWD as Norton Antivirus for the modern age, conceptually if not literally. Cyber is a market that most people will tell you is going to grow, […]

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