If you’re a CrowdStrike (NASDAQ: CRWD) investor like myself, you’ve had a rough few days. After approaching nearly $400 at the beginning of July, it tumbled significantly after an automatic update rendered some Windows-powered devices unable to run.
Unfortunately, the stock took a hit after the news broke as investors headed for the exits due to fears that the company could lose a significant portion of its customer base. I have some of those same concerns, but I’m still working through exactly what I should do, as CrowdStrike’s platform is still far superior to anything else.
As a shareholder, I have three options: Sell my shares, buy more stock, or wait and see what happens.
If you’re a prospective CrowdStrike customer and were going to sign a contract to use its software, would you still do it now, days after the failure? Perhaps not. The same goes for any clients looking to renew their contracts. While this business isn’t necessarily lost forever, these clients will take their time and thoroughly review to determine if CrowdStrike is still their ideal cybersecurity provider.
Undoubtedly, there will be a few who say “no” that would have said “yes” if not for the events on July 19. So, regardless of the outcome, a CrowdStrike sell-off was certainly warranted.
Additionally, CrowdStrike’s stock was trading at a very high valuation before this failure, so a pullback was likely inevitable.
CRWD PS Ratio data by YCharts
However, I don’t think panic selling is the right move here. CrowdStrike still has best-in-class software and is likely implementing systems to ensure this never happens again. But the damage is still done.
Another thought that crossed my mind was to load up on CrowdStrike stock. I’m still a believer in the company, thanks to its best-in-class solution. Furthermore, CrowdStrike’s Falcon platform is so woven into the fabric of how many companies protect from cyber threats that switching away would be incredibly painful.
With high switching costs plus no other company offering the full functionality of the Falcon platform, it’s hard to imagine a situation where customers are in a position to switch away from CrowdStrike. Furthermore, many of CrowdStrike’s clients signed multiyear deals already, so the chance for them to switch to a competitor’s product is still years away. By then, many will have forgotten about this issue, as less than 1% of Windows devices were affected by this issue.
A prime example of this is Chipotle‘s various health scares from 2015 to 2018. Eventually, customers forgot, and the stock continued its massive run. I think this story is one that CrowdStrike investors can latch onto as hope in this trying time.
This pullback allows investors to buy the stock for about the same price as in December 2023, but I don’t think there’s any reason to be a hero and buy now. There could be more pain to come, and while I think I will be a long-term buyer of the stock, now isn’t the right time to rush in.
After considering both the buy and sell camps, I’ve arrived at what I will do: Hold the stock. I don’t like losing a significant chunk of my gains in CrowdStrike stock, but I think the long-term opportunity exists. Additionally, I want to hear what management says during its second-quarter conference call, which should occur sometime in late August or early September.
Management will offer insight into how this is impacting contracts, which could cause my opinion to sway toward the buy or sell side. However, I have no way of obtaining that information besides staying patient. If I could travel into the future and know exactly what I should do with my CrowdStrike shares, then this would be a mistake 100% of the time.
However, I don’t have that ability, and I know I’ve been burned more by making rash decisions than by being patient while investing.
I’ll decide after I know more about how this is truly affecting CrowdStrike’s business. But for now, I think it’s best to hold onto CrowdStrike stock and see the impact.
Before you buy stock in CrowdStrike, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and CrowdStrike wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $700,076!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of July 22, 2024
Keithen Drury has positions in CrowdStrike. The Motley Fool has positions in and recommends Chipotle Mexican Grill and CrowdStrike. The Motley Fool has a disclosure policy.
—
Blog powered by G6
Disclaimer! A guest author has made this post. G6 has not checked the post. its content and attachments and under no circumstances will G6 be held responsible or liable in any way for any claims, damages, losses, expenses, costs or liabilities whatsoever (including, without limitation, any direct or indirect damages for loss of profits, business interruption or loss of information) resulting or arising directly or indirectly from your use of or inability to use this website or any websites linked to it, or from your reliance on the information and material on this website, even if the G6 has been advised of the possibility of such damages in advance.
For any inquiries, please contact [email protected]
