After spending some time on the sidelines, CrowdStrike (CRWD, Financial) stock is on the map again after UBS Group (UBS, Financial) listed it as one of its "top conviction picks" last week. According to the big bank, CrowdStrike forms part of a quality growth stock segment that could bypass 2022's bear market.
In a note, UBS analyst Keith Parker said, "Within security (cybersecurity), CrowdStrike is the market share leader in endpoint security and is expanding into growing markets including cloud security and security analytics."
Many investors might be wary of believing Parker's bullish case, given that CrowdStrike has shed more than 30% of its market value in the past year. However, key metrics imply that Parker's analysis might be accurate.
Key metrics
CrowdStrike operates in a highly addressable market. The need for front-end security and detection is growing exponentially due to the digitalization and interconnectivity of today's world. As such, CrowdStrike is well positioned to take advantage of the market's growth with its affordable offering.
The cybersecurity market is forecasted to reach an addressable size of over $345 billion by 2026 according to Statista. CrowdStrike's approximate 3.25% market share means that it has a battle on its hands to garner the full potential of the market; however, with a three-year compound annual growth rate of 76.31%, the signs are good that we could see the company's market share proliferate in the coming years.
Source: Statista
Furthermore, CrowdStrike's first-quarter earnings report showed the company is generating tremendous short-run performance. In its first quarter, CrowdStrike generated revenue worth $487.83 million, a 61.08% year-over-year increase. Moreover, the company managed to tighten its costs to beat its bottom-line earnings target by 8 cents per share.
Source: CrowdStrike
Valaution
A relative valuation implies that CrowdStrike is at an investable price level. The stock's price-to-cash-flow ratio and its price-sales ratio are trading at normalized discounts of 76.61% and 27.42%, respectively, meaning that the stock is undervalued relative to its cyclical peak.
The GF Value chart also suggests that CrowdStrike could reach $315.15 per share, which, if realized, would present more than 70% in upside.
Concluding thoughts
CrowdStrike can undoubtedly be considered a conviction play in my opinion. The company exhibits tremendous growth potential via its affordable front-end cybersecurity product and integration solutions. Moreover, the cybersecurity market is set for rapid growth over the next few years, and the odds are that CrowdStrike could increase its market share. Based on relative valuation metrics and GF Value, CrowdStrike could also be considered undervalued.
