Should You Buy CrowdStrike Before Its Stock Split?

CrowdStrike (NASDAQ: CRWD) stock has soared in recent years as the business itself gathered tremendous momentum. The cybersecurity giant harnesses the power of artificial intelligence (AI) to deliver a wide variety of solutions to its customers -- and that has resulted in increasing adoption rates and revenue.

Investors have been eager to get in on this company that is successfully using AI, as the stock has climbed 320% over the past three years. And this year, it's advanced about 35% to trade at more than $600 a share. This fantastic gain has inspired CrowdStrike to do something that several other tech giants -- from Nvidia to Broadcom -- have done in recent years. CrowdStrike announced a stock split, an operation that will bring down the per-share price and therefore make the stock more accessible to investors. The operation will take place on July 1.

Should you buy CrowdStrike before the big day? Let's find out.

Image source: Getty Images.

Why companies opt for stock splits

So, first, a quick note about stock splits. As mentioned, they are designed to help companies exert some control over their share prices: When they soar to levels that may shut out certain smaller investors, a company may opt for a stock split to bring the per-share price back down to Earth.

This is done by offering additional shares to current holders, according to the ratio of the split. But the total value of their investment stays the same. This means that stock splits don't change anything fundamental -- and they don't alter the stock's valuation, so technically, it won't become "cheaper."

Still, at a lower price point, it's easier for investors with smaller investing budgets to access. It's also important to keep in mind that, though the operation doesn't impact valuation, the stock may seem more attractive to investors at its new price. For example, the level of $1,000 per share may represent a psychological barrier for certain investors, regardless of valuation. It's no surprise that many companies have launched splits as their stock prices approach this level.

CrowdStrike's 4-for-1 stock split

Now, let's consider the CrowdStrike operation. The cybersecurity company has announced a 4-for-1 stock split, meaning current holders will receive three additional shares for every share they own. Based on today's price, that would bring the per-share price down to about $160. Keep in mind that this may change somewhat according to the price at the time of the operation.

Every holder as of June 25, the record date, will receive these additional shares -- but don't worry, if you buy the stock after that point, the right to those shares transfers over to you. The stock split happens after the close of business on July 1, and the stock will start trading at the new price as of July 2.

So, should you rush to get in on CrowdStrike prior to this move, its first-ever stock split? As mentioned, a stock split doesn't make a particular player a buy or a sell as it doesn't represent any change in the company's financial picture, strategy, or value. This means the operation won't act as a catalyst for a gain or a decline during or after the event.

So there's no reason to rush to get in on CrowdStrike before or even after the stock split. Instead, it's best to buy the shares when the moment is right for you. For example, if you aim to invest less than the current per-share price in CrowdStrike, it may be easier to buy post-split: You could easily buy a share or two instead of going for fractional shares.

Otherwise, though, you don't have to time your buy around this operation. Now, the next question is: Is CrowdStrike a buy? The company recently reported record first-quarter new annual recurring revenue, free cash flow, and cash flow from operations. And adoption rates for its security modules climbed in the double digits. This, along with the improving strength of AI, should fuel growth moving forward.

That said, trading at more than 120x forward earnings estimates, CrowdStrike looks expensive -- so it may be worth waiting and buying on a potential dip.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom, CrowdStrike, and Nvidia. The Motley Fool has a disclosure policy.