CrowdStrike Trades at Premium Valuation: Buy, Sell or Hold the Stock?

CrowdStrike CRWD is currently trading at a high price-to-sales (P/S) multiple, far above the Zacks Security industry. CrowdStrike’s forward 12-month P/S ratio sits at 18.65X, significantly higher than the Zacks Security industry’s forward 12-month P/S ratio of 12.53X.CrowdStrike Forward 12-Month P/S RatioImage Source: Zacks Investment ResearchCrowdStrike stock has also remained highly volatile due to several macroeconomic and business-related factors. However, CRWD stock has outperformed the Zacks Security industry in the past six months.CrowdStrike Six-Month Performance ChartImage Source: Zacks Investment ResearchThe real question for investors is whether CrowdStrike's high valuation justifies holding the stock amid its current volatility, or it's time to sell the stock.Key Challenges Faced by CrowdStrikeCrowdStrike is facing several challenges related to customers’ negative sentiments since the global IT outage incident on July 19, 2024. The company has been implementing the Customer Commitment Package to retain its customers, which includes product additions and discounts, hence compressing its revenue recognition and profitability.Despite all these measures, the company’s upsell into existing customers showed signs of slowdown and the churn rate remained moderate. Moreover, a report by Bloomberg reported that CrowdStrike is currently under federal investigation by the U.S. Department of Justice and the Securities and Exchange Commission (SEC) over a $32 million deal with Carahsoft Technology.The deal, meant to supply cybersecurity tools to the IRS, was reportedly never fulfilled, raising concerns of financial irregularities. Authorities are examining whether CrowdStrike engaged in pre-booking or channel stuffing to inflate financial results, while CRWD maintains that it handled the transaction appropriately.The ongoing investigation creates legal and reputational risks, softening investors’ confidence. While CrowdStrike maintains that it handled the transaction appropriately, the ongoing investigation creates legal and reputational risks, softening investors’ confidence.CrowdStrike Faces Competitive PressureAmid customer backlash and ongoing regulatory scrutiny that could damage CrowdStrike’s reputation, competitors may seize the opportunity to attract and convert its customer base. The cybersecurity space already contains players like Palo Alto Networks PANW, SentinelOne S and Cisco CSCO, who provide similar products like CrowdStrike.For instance, CrowdStrike’s Falcon Extended Detection and Response that connects multiple layers, including email, endpoints, servers, cloud workloads, and network, to provide a comprehensive security competes with SentinelOne’s Singularity platform, which provides AI-powered endpoint protection and XDR. SentinelOne also offers Autonomous threat hunting and remediation like CRWD.Cisco also provides extended detection and response  (XDR) features combined with other Cisco products. Like CRWD, Palo Alto Networks provides endpoint protection through Cortex XDR, which combines endpoint, network, and cloud data to detect and respond to threats. On the other hand, Palo Alto Networks’ Prisma Cloud competes with CRWD’s Falcon Cloud Security.All the above factors combinedly could weigh on CRWD’s profitability in the near term. The Zacks Consensus Estimate for CrowdStrike’s fiscal 2026 earnings indicates a year-over-year decline of 13.5%.CrowdStrike’s fiscal 2026 earnings have been revised downward by 90 cents from $4.30 to $3.40 in the past 60 days, implying investors’ skepticism about the stock’s near-term performance. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)Image Source: Zacks Investment ResearchConclusion: Sell CrowdStrike Shares NowCrowdStrike is battling mounting legal risks and slower upsells. Furthermore, the disappointing profit outlook for fiscal 2026, coupled with rising costs and deteriorating margins, makes this Zacks Rank #4 (Sell) stock less attractive in the near term.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Cisco Systems, Inc. (CSCO): Free Stock Analysis Report SentinelOne, Inc. (S): Free Stock Analysis Report Palo Alto Networks, Inc. (PANW): Free Stock Analysis Report CrowdStrike (CRWD): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks