3 Reasons to Buy CrowdStrike Before Its Stock Split

A new stock split is coming in a few weeks, and it's coming from an unlikely source: CrowdStrike (NASDAQ: CRWD). This isn't one I had on my radar, as its stock price in the neighborhood of $650 isn't quite at a level you'd normally associate a split with. Still, management will enact a 4-for-1 stock split at the end of the trading day on July 1. This will be a major event for some investors, but I think there are better reasons to buy the stock.

I've got three reasons why CrowdStrike is a solid buy before its stock split, and why investors should view its sell-off this month as a buying opportunity.

Image source: Getty Images.

Cybersecurity is a huge opportunity as AI-related threats grow

Having a top-notch cybersecurity system is vital for businesses in today's world. No matter what a company does, if its information isn't kept secure and its operating systems are prone to external threats, it could be in a precarious state. Furthermore, while generative artificial intelligence can be a useful tool for legitimate purposes, it can also be harnessed by bad actors to boost their capabilities to breach secure systems.

CrowdStrike is one of the cybersecurity industry's leaders. Its core software is endpoint security, which protects network endpoints like a laptop or phone from external threats. If it detects out-of-the-ordinary usage, it can shut down that endpoint, protecting a business's information quickly and automatically. But that's just the base capability. CrowdStrike also offers other modules that expand on this base capability, with 33 total products. Clients can use it as a one-stop shop for all of their cybersecurity needs, making it a solid pick in a world that needs cybersecurity more than ever.

CrowdStrike's revenue growth is solid

CrowdStrike's revenue growth has been fantastic. In Q1, its annual recurring revenue (ARR) rose 24% year over year to $5.51 billion. That's solid, incremental growth that showcases how it continues to find new clients and expand deals with existing ones, too.

One thing investors may point out is CrowdStrike's tepid profitability. In Q1, it lost money on an operational standpoint, and the company has never been solidly profitable over the past five years.

CRWD Operating Margin (Quarterly) data by YCharts.

There's huge room for improvement here, and if CrowdStrike can flip the profitability switch and deliver 30% to 40% operating margins like many mature software companies do, it could be a great investment.

The stock's valuation has come down recently

Valuation is important. The best company bought at the wrong price can still be a poor investment. However, context matters too -- some companies trade at relatively high valuations due to solid execution or industry positioning. CrowdStrike checks both of those boxes because cybersecurity is a rock-solid industry, and it's one of the best companies in it.

CRWD PS Ratio data by YCharts

At 130 times forward earnings, it looks incredibly expensive, but as mentioned before, it isn't solidly profitable. From a price-to-sales standpoint, its ratio of 32 is also a high premium. However, it has come down by more than 17% from the all-time high it reached early this month.

CrowdStrike is a leading stock in an important market segment, and it's unlikely to lose a large chunk of its premium. As a result, I'm willing to take any sell-off as an opportunity to buy it before its upcoming stock split.

Keithen Drury has positions in CrowdStrike. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool has a disclosure policy.