Prediction: You will regret not buying the CrowdStrike dip

I'll just say what everyone is thinking: Causing the largest global IT outage in history is bad. Unfortunately, that is CrowdStrike(NASDAQ:CRWD) did so on July 19, and the company's stock suffered a severe blow.

Since peaking on July 8, CrowdStrike stock has fallen nearly 30% as of August 30. That's bad news for investors who owned shares up until then, but it's an opportunity for people looking to buy or add to a stake in the cybersecurity company.

It's one thing when a stock crashes because something fundamental has changed in the business; it's another story when it happens because of a (very unfortunate) mishap. Since CrowdStrike appears to fall into the latter category, I think the market has overreacted and investors should consider buying on the current dip.

CrowdStrike is unlikely to lose many major customers

In the second quarter of fiscal 2025, which ended July 31, CrowdStrike reported encouraging customer numbers. Rather than focus on the total number of customers, I want to point out how many of CrowdStrike's customers use multiple of its modules (that's what it calls different security tools).

Notably, 48% of CrowdStrike customers with annual revenue of at least $100,000 use at least eight of its modules. CrowdStrike has a good base of high-value customers (62 of the Fortune 100 companies use it for cloud security), and it's not easy for larger companies to completely switch cybersecurity vendors.

For large companies, changing cybersecurity providers is not an easy task, as they are usually already integrated into their systems. This often takes a lot of time and resources and is a reason for companies to hesitate before taking big steps.

Since CrowdStrike's failure was caused by a software update mishap and not a security breach, there aren't many reasons to question the effectiveness of CrowdStrike's products. CrowdStrike's solutions are just as effective as they were before the IT outage, so I don't think customers will be leaving in droves.

CrowdStrike’s financial performance is undeniable

For companies like CrowdStrike that rely on subscriptions, it's important to look at metrics like ARR and free cash flow, and CrowdStrike performs well in both areas. Last quarter, ARR was over $3.85 billion, up 32% year over year after the company added $218 million during that period.

Free cash flow increased 44% year over year to $272 million, continuing the momentum seen over the past five years. Free cash flow is growing much faster than revenue, which has also grown impressively during this period.

CRWD revenue data (quarterly) by YCharts

Strong ARR and free cash flow give CrowdStrike the financial flexibility it needs to weather the current storm while reinvesting in the business and strengthening its offerings.

A fascinating entry point

Even after the recent drop, CrowdStrike stock isn't “cheap” by most standards. Its price-to-sales (P/S) ratio of 19.5 is higher than many of its top competitors, but well below its average over the past five years.

CRWD PS Ratio data by YCharts

CrowdStrike's low(er) P/S ratio alone does not make it a buy in the crisis, but it does make it more attractive given its revenue forecasts. The company expects revenue between $3.89 billion and $3.9 billion, which represents a year-over-year growth rate of 27 to 28 percent.

There's no denying that CrowdStrike poses short-term questions, but the company's strong customer base and financial performance provide some reassurance that whatever happens will be a more short-term issue. If you don't take advantage of this opportunity, you'll likely regret it in a few years.

Decide how much you want to invest in the company and split it into partial amounts. This can protect against sudden price drops and smooth out the impact of potentially high volatility.

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Stefon Walters holds positions in CrowdStrike. The Motley Fool holds positions in and recommends CrowdStrike, Palo Alto Networks, and Zscaler. The Motley Fool has a disclosure policy.