Should investors buy this downbeat cybersecurity stock in anticipation of a solid recovery?

Actions of CrowdStrike Holdings (CRWD 2.06%) is up an impressive 83% over the past year, but the stock has been in freefall mode for the past month and a half thanks to a botched software update that caused a global IT outage on July 19.

Specifically, CrowdStrike shares lost 13% of their value on the day. It’s also worth noting that the cybersecurity stock has retreated nearly 33% from the 52-week highs it hit on July 9. Against this backdrop of negativity, CrowdStrike’s Q2 fiscal 2025 report (for the three months ended July 31) had a lot to say.

The cybersecurity specialist released its quarterly report on Aug. 28, and its stock fell about 2 percent in premarket trading the next day. Let’s see why that was and check if there is any possibility of turning his fortunes around.

CrowdStrike’s results were not as bad as feared

CrowdStrike reported fiscal second-quarter revenue of $964 million, up 32% from the same quarter last year. Non-GAAP net income (adjusted) rose 40% year-over-year to $1.04 per share. Wall Street would have settled for $0.97 per share in earnings on $958 million in revenue, but CrowdStrike managed to do better than that despite the outage causing huge financial losses to the likes of Delta Air Lines.

However, CrowdStrike cut its full-year revenue guidance to a range of $3.89 billion to $3.9 billion, from a previous range of $3.98 billion to $4.01 billion. Wall Street was anticipating revenue of $3.95 billion for fiscal 2025, and this weaker-than-expected guidance is likely why CrowdStrike stock fell following its results.

The good news, however, is that the company still expects revenue growth of 27% from fiscal 2024 levels, despite cutting its guidance by 2.5% in the middle. And for the current quarter, CrowdStrike expects its top line to grow 25% year-over-year to $982 million in the midpoint. The company’s updated fiscal 2025 adjusted earnings guidance of $3.63 per share would be a 17% increase from fiscal 2024 levels.

CrowdStrike cut its fiscal 2025 earnings estimate from its previous expectation of $3.98 per share because of the compensation package it designed following the disruption. CFO Burt Podbere noted on the most recent earnings conference call that: “As reflected in our near-term earnings guidance, we expect our engagement packages to result in a temporary reduction in the dollar values ​​of additional sales and temporarily higher than typical levels of shrinkage due to extended subscription terms. We estimate that these packages will impact net ARR and subscription revenues by approximately $60 million, and single-digit professional services revenues will have a high impact in mid-2025.”

More importantly, management added on the conference call that “its agreements with customers contain provisions that limit our liability and we maintain insurance policies designed to mitigate the potential impact of certain claims and to have a strong cash position.”

For example, CNN points out that CrowdStrike’s liability to Delta is limited to $10 million, even though the airline suffered a $500 million loss due to the outage. Management also stressed that it continued to attract customers even after the July 19 incident. One was an eight-figure deal with a major enterprise software company where CrowdStrike replaced another vendor. The second was a nine-figure deal for its Falcon Cloud security platform.

Should investors consider buying these cybersecurity stocks?

CrowdStrike’s latest results indicate that it may be able to handle the fallout from the July 19 incident. But at the same time, investors would do well to keep an eye on its deal activity over the next few quarters and see if CrowdStrike can continue to stay on the good side of customers, winning more business from them and attracting new accounts.

What’s worth noting here is that while analysts have lowered their growth expectations for CrowdStrike, they still expect to see an earnings growth rate of more than 20% over the next two years.

CRWD EPS estimates for current fiscal year data by YCharts

Similarly, the company’s top line is also forecast to register a growth rate of over 20% in the current and next two fiscal years.

CRWD Revenue Estimates for Current Fiscal Year Data by YCharts

These growth rates appear robust despite the recent challenges the company has faced. However, CrowdStrike trades at an expensive 18 times sales and 66 times forward earnings. Buying CrowdStrike at these multiples seems like a risky bet given its low guidance, as well as the fact that the company’s CFO noted on the earnings call that “the outcome of litigation is inherently difficult to predict, particularly in the early stages and it is still too early to estimate any potential legal exposure we may have at this time.”

So, it would be a good idea for investors to take a wait and watch approach as the whole picture may not have unfolded yet.