Is CrowdStrike a bad news buy?

Bad press can sink a stock, but that doesn’t mean it will stay down forever. In some cases, buying a stock when it’s getting a lot of negative attention can position you for bigger profits down the road. As long as the underlying business isn’t in bad shape, a selloff due to bad press could be a great buying opportunity.

CrowdStrike Holdings (CRWD -0.81%) it could be just such an opportunity. In July, it inadvertently triggered what some described as the largest IT outage ever, destroying millions of Windows computers around the world. That outage, caused by the release of a faulty software update, affected many industries and had a broad impact on consumers and businesses.

CrowdStrike’s stock went over a cliff after it became clear that the company was to blame. They’ve bounced back somewhat, but before the disruption, they were up more than 40% in 2024. Today, CrowdStrike’s year-to-date gains sit at a much more modest 8%. Could this be a great time for investors to get the tech stock at a discount?

CrowdStrike’s business is still growing, but it has adjusted its guidance

On August 28, CrowdStrike reported its fiscal second quarter results, which still looked strong. For the period ended July 31, revenue rose 32% year-over-year to $963.9 million and operating income was $13.7 million, an improvement over the operating loss of USD 15.4 million in the prior year period.

The caveat, however, is that the July 19 outage occurred too close to the end of that fiscal quarter for its effects to make a significant difference to the report. However, there are signs that its business was already feeling the impact as management adjusted its guidance for the year.

For fiscal 2025, which ends in January, CrowdStrike expects revenue to be about $3.9 billion, down from the roughly $4 billion it projected a few months earlier. The more notable change was on the bottom line. CrowdStrike now expects adjusted revenue to be between $774.7 million and $783.9 million, down from its previous guidance range of $890.1 million to $916.5 million.

The big test will come in later quarters as customers decide whether or not to stay with CrowdStrike.

CrowdStrike stock may be down, but it’s not cheap

Although CrowdStrike shares have fallen more than 10% over the past three months, the stock was trading at extremely expensive valuations before the outage; a sale may be delayed. Based on analyst estimates, CrowdStrike is still trading at 76 times forward earnings. For comparison, rival Palo Alto Networks trades at a forward earnings multiple of 57.

While none of these multiples are cheap, it might be difficult to justify paying a higher premium for CrowdStrike than Palo Alto right now. Analysts may also end up lowering their expectations for CrowdStrike’s earnings as they learn more about the fallout from the outage. If that happens, the company’s already high forward price-earnings multiple would become even more inflated.

Investors would be better off taking a wait-and-see approach with CrowdStrike

CrowdStrike’s growth rates have been impressive, and if the stock were trading at a friendlier valuation, it might look like a good investment right now. But as it stands, there isn’t much margin of safety with the stock. Even if CrowdStrike’s business recovers over the long term, investors should demand a discount to offset the uncertainty ahead, which is why I’d suggest waiting on the sidelines. While the stock may have dropped in value, it’s still not worth buying at the current price.