CrowdStrike (CRWD) is among the most closely watched stocks on the index following its starring role in July’s global computer outage. However, despite explosive earnings growth projections, I still believe the stock looks overvalued and can’t justify its valuation.
As such, the potential for regulatory scrutiny, reputational damage, and financial costs emanating from the outage all represent further downside risks. Nonetheless, I accept that analysts are positive about CrowdStrike, and taking this body of experts into account, I’m neutral on the stock.
The CrowdStrike Fiasco
Let’s start with the CrowdStrike outage, which took place a little more than a month ago, causing significant financial and reputational repercussions for both the company and its clients. The outage, caused by a faulty software update, led to widespread disruptions across multiple sectors, including airlines, banks, and healthcare.
Delta Air Lines (DAL) was among those hit particularly hard, incurring an estimated $500 million in costs over five days, which included lost revenue and customer compensation. CEO Ed Bastian highlighted the extensive impact, noting the cancellation of 7,000 flights over five days, impacting around 1.3 million passengers.
The financial implications could be substantial, but the real toll is still unknown. CrowdStrike is likely shielded by insurance policies against billions of dollars of damage claims. Moreover, analysts, such as Liz Herbert from Forrester, suggest that the legal disputes between Delta and CrowdStrike are likely to end in a negotiated settlement, given the contractual agreements in place. Moreover, some analysts have suggested that the scale of disruption could draw regulatory scrutiny.
“Given the scope of the outage and scale of economic disruption, we expect fresh, louder debates on the limits of vendor consolidation (systemic risk) both across the IT stack and especially cybersecurity,” Citi analysts said. It was added that the event showcased the negative impact the consolidation of the tech and cybersecurity space has on the wider economy.
CrowdStrike’s Earnings Revisions
So, what impact is this having on the business? CrowdStrike is due to report quarterly earnings on August 28, and the consensus estimate suggests earnings per share (EPS) of $0.97. That’s up sequentially from $0.93 in its 2025 Q1. Analysts are expecting $958.4 million in sales, marking a jump from the $921 million achieved in Q1.
Interestingly, earnings estimates for Q2 have generally been revised upwards over the past 90 days. There have been 30 upward revisions during the period and just five downward revisions. This may appear illogical given the massive internet outage caused by CrowdStrike technology occurred in the quarter ended July 31, 2024.
However, looking at revisions trends over the past month indicates that analysts are becoming less bullish. In fact, over the last month, the consensus earnings estimates for every quarter through to Q4 2027 have been revised downwards.
This appears to reflect the fact that earnings and revenue won’t be immediately impacted by the outages. Instead, impairments and reputational damage will have a lingering impact.
Does CrowdStrike’s Valuation Make Sense?
Now, on to the all-important valuation metrics. Despite the share price collapsing after the Falcon update outage, CrowdStrike stock still looks incredibly expensive on a near-term basis. The stock is currently trading at 68.3x non-GAAP forward earnings and 321x forward earnings on a GAAP basis.
However, it’s important to note that despite negative earnings revisions, the company is expected to grow earnings by a CAGR of 45.4% over the medium term. In turn, this leads to a price-to-earnings-to-growth (PEG) ratio of 1.97. That’s far above a ratio that would indicate good value.
While some analysts may point to expanding market size and long-term earnings growth, I believe this type of investing can be rather speculative. This is especially the case when the stock in question is trading at such considerable earnings multiples in the near term.
Is CrowdStrike A Buy According To Analysts?
On TipRanks, CRWD comes in as a Strong Buy based on 30 Buys, six Holds, and one Sell rating assigned by analysts in the past three months. The average CrowdStrike stock price target is $342.06, implying a 27% upside potential.
The Bottom Line on CrowdStrike
CrowdStrike presents an interesting investment opportunity. The average share price target indicates that the stock is considerably undervalued. However, I personally don’t think the valuation and growth metrics concur. Moreover, I find the potential downsides emanating from the Falcon update outage to be particularly concerning.
