CrowdStrike Just Had Its Best Quarter Ever, and I'm Not Buying the Stock at 43 Times Revenue

"Q2 was the best quarter in CrowdStrike's history," founder and CEO George Kurtz said in CrowdStrike's (NASDAQ:CRWD) release for its fiscal second quarter of 2027 (the period ended July 31, 2026), which came out Wednesday. Company chiefs say things like that often. But the numbers here back the claim up.

And the market agreed. The cybersecurity specialist's shares jumped more than 20% on Thursday, closing at about $228, within about 1% of their 52-week high.

I think the business deserved the applause. But I'm still not buying the stock. The reason is the price -- and what a buyer at this price needs the next several years to deliver.

Image source: CrowdStrike.

A record quarter

The headline metric for CrowdStrike is annual recurring revenue (ARR), the annualized value of its subscription contracts. Net new ARR (the amount added in the quarter) hit a record $332.8 million, up 51% year over year. Total ARR reached $5.84 billion, up 25% year over year. And ARR from customers on Falcon Flex, the company's flexible licensing model, more than doubled year over year to $2.29 billion.

Revenue kept pace, rising 26% year over year to $1.47 billion in fiscal Q2, with subscription revenue up 27%. Profitability moved the right way, too. Non-GAAP (adjusted) operating income climbed 46% year over year to $371.6 million, adjusted subscription gross margin ticked up a point to 81%, and the company generated a fiscal second-quarter record $377.4 million in free cash flow, up 33%. Even on generally accepted accounting principles (GAAP) terms, which include heavy stock-based compensation, CrowdStrike swung to a small net profit from a $70.2 million loss a year earlier. The company also ended the quarter with $5.01 billion in cash and equivalents.

Management raised its full-year outlook on the strength of it all. CrowdStrike now expects fiscal 2027 revenue of about $6 billion, guided fiscal third-quarter revenue to as much as $1.53 billion, and lifted its net new ARR growth outlook by 630 basis points, to 34% at the midpoint. Chief financial officer Burt Podbere pointed to a record fiscal third-quarter pipeline as well.

So why not buy it?

The price. After Thursday's jump, CrowdStrike's market value stands near $232 billion, against $5.4 billion of trailing-12-month sales. That's about 43 times sales.

Frame it on the raised outlook instead, and the picture barely improves: about 39 times expected sales for this fiscal year, and about 178 times the adjusted net income management's own guidance implies for the year. Whichever basis you use, the valuation sits at a level arguably reserved for a handful of companies in the entire market.

A high multiple can be earned. CrowdStrike is growing 26%, converting a quarter of its revenue into free cash flow, and taking share in a security market with durable demand behind it. My problem isn't the business. It's how much of that future a buyer at today's price has already paid for.

What fiscal 2029 would have to look like

Play the guided pace forward. ARR ends this fiscal year around $6.6 billion, per management's raised outlook. Compound that at the current 25% growth rate for two more years, and CrowdStrike reaches roughly $10 billion in ARR by fiscal 2029. Impressive -- and at today's market value, the stock would still cost about 23 times ARR at that point.

So what would it take to bring the multiple down? For the sales multiple to compress to 15 times sales by fiscal 2029 (still a premium price for a software business), revenue would need to reach about $15.5 billion. From the roughly $6 billion management just guided to for this fiscal year, that requires revenue growth of about 60% a year -- well more than double the pace of the outlook it just raised. In other words, today's price doesn't just assume CrowdStrike keeps executing. It assumes the company meaningfully accelerates from a record quarter, for years to come.

Sure, net new ARR just grew 51%, so an acceleration isn't fantasy. It may even happen. But it's already in the price, and stocks priced this way can fall hard when good results arrive where the market expected great ones.

Would I buy CrowdStrike after the best quarter in its history? Not at 43 times sales. If years of growth bring the sales multiple down into the teens, or the price gets there faster, I'd take another look.

For now, the quarter raised my opinion of the business, and it didn't change my answer on the stock.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool has a disclosure policy.