Is CrowdStrike Stock a Buy After Falling 17% Year to Date?

Core Viewpoint - CrowdStrike is experiencing strong growth, but its stock valuation assumes this growth will continue without significant challenges, leading to a potential disconnect between stock performance and business fundamentals [1][2]. Financial Performance - In the third quarter of fiscal 2026, CrowdStrike's revenue increased by 22% year over year to $1.23 billion, with subscription revenue growing by 21% to $1.17 billion [5]. - Annual recurring revenue (ARR) rose by 23% year over year to $4.92 billion, with net new ARR of $265 million for the quarter [6]. - The company generated $398 million in operating cash flow and $296 million in free cash flow, resulting in a free cash flow margin of 24% [7]. Customer Adoption - 49% of customers are using six or more modules, an increase from 48% in fiscal Q2 and 47% in the previous year [5]. - Adoption rates for seven and eight modules stand at 34% and 24%, respectively [5]. Valuation Concerns - Despite strong revenue growth and cash generation, CrowdStrike reported a loss from operations of $69 million in fiscal Q3, raising concerns about its profitability [9]. - The company's market capitalization is approximately $98 billion, and its price-to-sales ratio of 21 is considered high for a software company, indicating that the stock is priced for near-perfect execution [10][11]. Competitive Landscape - The cybersecurity market is becoming increasingly crowded, with potential pricing pressures from larger tech companies offering bundled security solutions [13]. - Execution risks are present, particularly related to incident-related costs from product updates, which could impact sales [14].