Could CrowdStrike Stock Help You Become a Millionaire?

CrowdStrike Holdings (CRWD 0.79%) is one of the leaders in cybersecurity and continues to gain popularity day by day. When it launched its Falcon platform in 2013, it was considered one of the pioneers of cloud-native solutions powered solely by artificial intelligence (AI).

Since its IPO on June 12, 2009, CrowdStrike’s stock has increased in value by about 320%. If you had invested $25,000 in the company during that time and held on to the shares, your stake would be worth about $116,000 today.

CRWD data by YCharts.

That amount would have been much higher in mid-July, before CrowdStrike’s stock plunged due to a global computer outage caused by the company during an attempted software update. The massive error scared away investors, and the stock is now down more than 28% since July 18.

Despite the disaster that will surely befall the company in the near future, I believe that CrowdStrike is still in its early stages. Given that it has only been around since 2011, the company has plenty of time to create millionaires.

Even a fraction of the growth seen in recent years could do the trick.

CrowdStrike has averaged over 40% annual returns since its IPO, more than three times the average annual return. S&P 500It’s unreasonable to think the company can maintain this momentum for decades, but it doesn’t need it to create millionaires.

For an investment to grow from $25,000 to $1 million in 20 years, it needs to grow at a little over 20% per year. To grow from $100,000 to $1 million in 20 years, it needs to grow at about 12.25% per year. It would be a remarkable feat to average 20% annual returns over two decades, but the latter option is entirely feasible.

You never want to make assumptions about a stock’s future growth (or decline), but CrowdStrike is a leader in an industry that’s poised for explosive growth in the years ahead.

The growth potential of the cybersecurity sector

Cybersecurity has gone from being a luxury to a mandatory expense for virtually every business with an online presence. It’s a bit like insurance: You pay less up front and over time to avoid much higher costs (to your finances and reputation) if your business falls victim to a cyberattack.

According to a McKinsey study, the total potential market for cybersecurity solutions could be between $1.5 trillion and $2 trillion. By 2022, the consulting firm estimated that only $150 billion had been captured.

According to McKinsey, this gap is largely due to a lack of automation, high prices and insufficient service capabilities, but that’s where CrowdStrike comes in.

When in doubt, follow the customers

There are many cybersecurity companies out there, but they’re not all created equal. CrowdStrike consistently ranks among the top companies for endpoint security (any device that connects to a network, such as smartphones, laptops, desktops, and servers).

After its most recent quarter (ended April 30), the company said 65% of its customers were using five or more modules, 44% were using six or more, 28% were using seven or more, and the number of those using eight or more increased 95% year over year. This is a testament to the comprehensiveness and effectiveness of its platform.

It’s also worth noting that 62 of the Fortune 100 (the 100 largest U.S. companies by revenue) use CrowdStrike for their cloud security. At this size, companies demand extremely reliable and comprehensive protection, and their use of CrowdStrike demonstrates its reputation as a top-tier service provider.

It has excellent finances to support the growth of its customer base.

Big companies have big checkbooks, and that’s worked out well for CrowdStrike’s finances. Since its business model is subscription-based, annual recurring revenue (ARR) provides a good snapshot of its financial health. In its most recent quarter, CrowdStrike added $212 million in net new ARR, bringing its total to $3.65 billion, a 33% increase from a year earlier.

Revenue of $921 million for the quarter increased 33%, and its free cash flow increased 42% on increased margins.

CRWD Revenue (Quarterly); data by YCharts.

You should always stick to conventional investment principles

Despite CrowdStrike’s past success and bright future, investors should not lose sight of the importance of diversification. The stock should be part of a well-balanced portfolio, not the majority of it. Any stock is volatile, but as a relatively new growth stock, CrowdStrike is more susceptible to it.

Tapping into CrowdStrike’s potential while maintaining a balanced portfolio will help you benefit from its growth while protecting yourself from the unpredictable nature of an irrational stock market. With a little patience, CrowdStrike could become a stock that creates millionaires along the way.