I know Crowdstrike is like catching a falling knife right now. Since last week the stock has dropped 18% to $254. Not a major sale but at a certain point the stock becomes attractive again.
My main question is when is a good time to start building a small position? What are some red and yellow flags to look out for?
The obvious ones are potential lawsuits/liabilities from F500 companies. Which is very hard to price. So I do see the stock going below $200 over the next six months. Maybe creating an interesting opportunity to also write calls and buy LEAPs. Either way, I need help working through worst-case scenarios for the stock price.
Right now I think the EBITDA multiple is way too rich (165x). Since the stock recently achieved profitability, I think any potential lawsuits will wipe out near-term profits. Which means the stock will be in the red for the next 2-3 quarters.
High level I think an entry price can be around $180 before year-end. My bullish reasoning for the stock is that last week was a software glitch, not a security incident. Black swan events like this happen to even the best companies. But if Crowdstrike encountered a cybersecurity attack, this stock will drop by 50% and be forgotten.
Let me know what you think the downsides might be and how you would price them.
Disclosure: no positions in CRWD
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