Is Crowdstrike a buy after the crash?
The stock price has fallen, but is it cheap?
Blue Screen Blues
On 19 July 2024, a widespread digital disruption crippled essential services.
Banks, television networks, and airports were paralyzed.
Even my employer, a digital payments company, was not spared.
Ironically, as this incident happened on a Friday, some of my colleagues were celebrating TGIF, declaring an early start to the weekend.
Some of the blame fell on Microsoft, but the root cause was a software glitch in cybersecurity company, CrowdStrike.
Unsurprisingly, its stock price dropped more than 10%.
While I don’t own this stock, it’s been one on my watchlist.
One which I was waiting to add when the price is right.
Many investors assume that stocks become cheap whenever stock prices drop.
This couldn’t be further from the truth.
The reality is that not all stocks that drop are cheap. On the flip side, not all stocks that rise are expensive.
Some stocks may become more expensive as they drop, while others may become cheaper as the stock price rises.
This concept is counterintuitive - it’s what trips up so many people.
How much is Crowdstrike (CRWD) worth?
To determine whether a stock is cheap or not, we need to know how much the company is worth.
This can be done by calculating the intrinsic value of the company.
CRWD is worth around $230, so despite the share price decline, the stock is still expensive.
What to do?
Owing to the global chaos that the outage caused, the company faces a potential DEI lawsuit.
The impact of this lawsuit is likely to be in the multi-billions.
As we do not yet know the financial and reputational impact of this outage, a prudent approach would be wait-and-see.
I hope you enjoyed reading this piece as much as I did writing it.
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