Here’s how the July outage is affecting CrowdStrike today. Is the stock a buy?

Just a few months ago, CrowdStrike (CRWD 1.56%) he lived his hardest moment. A botched software update has led to the world’s largest information technology outage – blue screen errors have halted operations at companies and organizations around the world, from airlines to hospitals. Although CrowdStrike issued a fix within an hour, some customers struggled for weeks to resume business as usual. In fact, insurance company Parametrix estimated that the outage could have cost Fortune 500 companies $5.4 billion.

Unsurprisingly, CrowdStrike shares fell more than 35% in the two weeks following the July 19 incident. Since then, however, the stock has regained some ground, climbing nearly 30% from its Aug. 2 low. The cybersecurity giant provided updates to customers and investors on the impact of the outage during its earnings report in late August and during Fal.Con. conference in Las Vegas earlier this month. Let’s take a look at some of the details and find out if the stock is a buy right now.

Image source: Getty Images.

CrowdStrike’s Falcon

First, a quick summary of CrowdStrike’s business. The company offers customers a cloud-based security platform based on artificial intelligence (AI), Falcon, which collects data from a company and beyond to detect potential threats. Falcon is a single, lightweight agent, but it can handle any security need thanks to the 28 optional modules attached to it — it specializes in a wide variety of areas, such as identity protection or cloud security, for example .

CrowdStrike has seen its revenue grow in recent years as customers appreciate the company’s ability to handle all of their cybersecurity needs — and through a convenient software-as-a-service model. The share price followed, gaining more than 380% over the past five years.

Now, a look at how CrowdStike has fared since the July outage. The event occurred about two weeks before the end of the reporting period, so it put the brakes on new contract signings and shifted CrowdStrike’s focus away from deals and marketing and toward working with customers affected by the outage. As a result, more than $60 million in deals that were expected to close in the quarter were delayed — but the good news is that CrowdStrike expects them to close in future quarters.

In fact, CrowdStrike said most pre-incident deals remain ongoing, that it won major deals after the incident — such as an eight-figure deal with an enterprise software company — and most customers have proven to be supportive of CrowdStrike and intend to stick with the cyber security giant.

Record the cash flow

The company also managed to deliver solid results in the second quarter, with annualized recurring revenue (ARR) growing more than 30% to $3.8 billion and operating cash flow and free cash flow reaching record levels . And the company has maintained its goal of achieving $10 billion in ARR by FY2031.

However, it is important to remember that the impact of the July outage is not over. The company expects “customer engagement packages” — incentives offered to customers as some compensation — to hit new ARRs and subscription revenue by about $60 million later this year. CrowdStrike faces other headwinds weighing on visibility for the latter part of the year as well. For example, the company expects contracts to take longer to sign, with “additional scrutiny” sometimes requiring approvals at the executive or board level.

The company may also face legal challenges from certain customers due to the disruption — Delta Air Lines talked about potential legal action — though clauses in CrowdStrike’s contracts could limit its liability, and the company’s insurance policies may further reduce any outage expenses.

The importance of Falcon Flex

So it’s fair to say that, yes, the outage is weighing on CrowdStrike and may continue to do so — but it hasn’t stopped growth. In addition, CrowdStrike applies the “Falcon Flex” program, which requires customers to commit to Falcon but allows them to pick and choose modules as needed over the course of the contract, to its customer commitment packages. This means that as part of Flex, CrowdStrike can offer customers additional benefits to offset the disruption — and at the same time, those customers will discover Flex and may end up spending more over time.

Now, back to our question: Is CrowdStrike a buy? A look at the valuation shows that CrowdStrike is cheaper than earlier this year — trading for 77 times forward earnings estimates versus more than 100 times before the July disruption. But even at these levels, it’s not the cheapest growth stock on the block. For example, AI chipmaker Nvidia and the e-commerce giant Amazon each trade for about 40 times the forward earnings estimate.

That said, CrowdStrike has a solid track record of winning, and after a significant negative event, the company has continued to maintain growth — and keep customers on board and even close new deals. The headwinds are not over, but the long-term view remains bright. And that means growth investors looking for a buy-and-hold stock should consider this cybersecurity giant.