CrowdStrike Stock Drops on Cautious Outlook -- Is This a Buying Opportunity?

Share prices of CrowdStrike (NASDAQ: CRWD) sank after the company reported further deceleration of its revenue growth and maintained its full-year revenue guidance. Despite the share-price decline and the cybersecurity company's forecast disappointing investors for the second time in 2025, the stock still trades up nearly 37% on the year, as of this writing.

When CrowdStrike's stock dipped in reaction to its fiscal 2026 first-quarter earnings report in March, it was a good buying opportunity. Let's take a closer look at its most recent Q2 results (which ended April 30) and guidance to see whether investors should buy this dip as well.

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CrowdStrike reported decelerating revenue and ARR

During its fiscal first quarter, CrowdStrike saw both its revenue and annual recurring revenue (ARR) continue to decelerate. Its revenue jumped 20% to $1.1 billion, which matched the analyst consensus as compiled by LSEG. Subscription revenue also rose by 20% to $1.05 billion. Its ARR, which is the annualized value of CrowdStrike's customer subscription contracts, rose by 22% to $4.44 billion, as it added $193.8 million in new ARR during the quarter. ARR can be an indication of future revenue growth.

Both its revenue and ARR growth have continued to decelerate over the past several quarters, as seen in the table below.

Data source: CrowdStrike earnings reports. CrowdStrike's fiscal year ends Jan. 31.

However, the company said it expects to see improving sequential net new ARR growth next quarter and accelerating ARR growth in the second half of the fiscal year. This confidence stems from the strong adoption of Falcon Flex, which is a flexible licensing agreement whereby customers deploy modules only when needed to access its entire portfolio. It said that in less than two years, it has closed more than 820 Falcon Flex deals worth $3.2 billion.

Falcon Flex ultimately speeds up what used to be a long, slow sales process, helping customers quickly adopt more of CrowdStrike's modules. That leads to faster growth and makes the platform stickier. The company said the average Flex customer deal size now exceeds $1 million in ARR, with contracts averaging 31 months in duration.

Falcon Flex is also helping power the adoption of CrowdStrike's next-gen security modules. It's seeing strong growth across its Next-Gen SIEM, Cloud Security, and Identity Protection modules, while it also highlighted the traction its new generative artificial intelligence (AI) security analyst, Charlotte, is gaining. It noted that Charlotte AI played a big role in an eight-figure Falcon Flex expansion at a global healthcare provider in the quarter.

While ARR growth is expected to begin to accelerate, CrowdStrike said there will be a temporary, near-term separation between ARR and subscription-revenue recognition. This is due to its prior customer-commitment packages (CCPs), which were offered last year, largely in the form of additional modules and Falcon Flex subscriptions, to customers impacted by its well-publicized IT outage. While there was only a $1 million difference in Q1, it's expected to range between $10 million to $15 million a quarter for the rest of the year.

Turning to other metrics, CrowdStrike's adjusted earnings per share (EPS) fell 8% to $0.73. That was above the adjusted $0.63 analyst consensus. The decline was the result of the company ratcheting up spending in areas like sales & marketing and research & development.

The company continues to generate a prolific amount of cash, with operating cash flow of $384.1 million and free cash flow of $279.4 million. It ended the quarter with a record $4.61 billion in net cash and short-term investments and $744 million in debt.

Looking ahead, CrowdStrike maintained its fiscal 2026 guidance for revenue to between $4.74 billion and $4.81 billion, representing growth of 20% to 22%. However, it boosted its adjusted EPS to a range of $3.44 to $3.56, up from a prior outlook of $3.33 and $3.45.

For its fiscal second quarter, the company forecast adjusted EPS of $0.82 to $0.84 on revenue of $1.14 billion to $1.15 billion. Analysts were looking for EPS of $0.81 on revenue of $1.16 billion.

Is it time to buy the dip?

CrowdStrike is seeing consistent revenue and ARR growth declines. It's also ramping up expenses, which is leading to lower profitability. That's not a great combination for a stock that trades at a forward price-to-sales (P/S) multiple of just under 24 times fiscal 2026 analyst estimates, which is quite expensive for only 20% revenue growth.

Management expects its ARR growth to begin to reaccelerate in the second half, which is something it will need to do in order to help justify its current valuation. Its Flex Falcon and next-gen security modules have great potential, but they need to start moving the growth needle even more.

Given its valuation and current growth outlook, I'd stay on the sidelines and not buy the dip.

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Geoffrey Seiler 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.