This Cybersecurity Stock Could Turn $1,000 Into More Than $4,400
Key Points
In its latest fiscal quarter, CrowdStrike's annual recurring revenue jumped 25% year over year to $5.8 billion.
Management expects recurring revenue and free cash flow margins to rise substantially over the coming years.
CrowdStrike's premium valuation could significantly limit further shareholder returns even if the business meets its long-term targets.
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Shares of cybersecurity giant CrowdStrike (NASDAQ: CRWD) have gained over 100% so far in 2026.
Despite those stellar gains, I think that this cybersecurity company could still turn a $1,000 investment made today into a position worth more than $4,400 over the next decade.
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Upside potential
CrowdStrike's annual recurring revenue (ARR) soared 25% year over year to $5.8 billion in the second quarter of its fiscal 2027 (which ended July 31). Management is targeting $10 billion in ARR by fiscal 2030 and $20 billion by fiscal 2035.
CrowdStrike generated about $846 million of free cash flow in the first half of its fiscal 2027. The company is also targeting a free-cash-flow margin of 34% to 38% by its fiscal 2029.
If its annual revenues eventually approach $20 billion as ARR reaches management's target, a 38% free cash flow margin could produce about $7.6 billion of annual free cash flow.
CrowdStrike currently trades at roughly 160 times trailing free cash flow, giving it a market capitalization of about $243 billion. Assuming its share count remains roughly unchanged, $7.6 billion of future annual free cash flow at the same multiple would imply a market capitalization of about $1.07 trillion. That could turn a $1,000 investment into more than $4,400.
However, some valuation compression seems likely as CrowdStrike becomes larger and its growth slows. At a free-cash-flow multiple of 80, the company would be worth about $608 billion, potentially turning $1,000 into roughly $2,500. At 70 times, its market value would be about $532 billion, in which case a $1,000 investment would grow to roughly $2,190. A more bearish 50-times multiple would value CrowdStrike near $380 billion and turn $1,000 into around $1,560. Significant equity dilution, however, could negatively impact shareholders' potential returns.
For the stock to more than 4x over the next decade would likely require CrowdStrike to retain today's premium valuation, while turning a $1,000 investment into roughly $2,200 seems like a more reasonable long-term outcome to expect.
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Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool has a disclosure policy.
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