Why CrowdStrike stock just burst 5%

What happened

Investors in CrowdStrike Holdings (NASDAQ: CRWD) have a good week. After starting at a stock price of just over $ 200 on Monday, the cybersecurity specialist’s shares rose nearly 10% in four trading days, including a 5% rise until 11:55 a.m. EST today.

You can send your thanks to Wall Street Investment Banks.

Image source: Getty Images.

So what

Specifically, to investment bankers Piper Sandler and Barclays Capital. On Tuesday, Piper kicked off the CrowdStrike rally by raising her target price on CrowdStrike by 33%, from $ 180 to $ 240 per share, reports TheFly.com. A day later, Barclays stepped in with a hike in its price target – only to $ 221, admittedly, but it was still 6% more than what the stock was trading at the time.

In her memo, Piper described CrowdStrike as the “best-in-class” security platform and said the company won contracts against the competition. He also predicted that CrowdStrike will experience “disproportionate growth” this year. Barclays’ rating might not have been as bullish as it sounds, but like Piper, the UK banker at least reiterated an overweight (i.e. buy) stock rating.

Now what

I will not dispute the qualitative ratings of analysts on CrowdStrike, but I must challenge their claim that CrowdStrike stock is undervalued.

Historically unprofitable, CrowdStrike is a powerful cash generator, generating $ 255 million in positive free cash flow over the past year. Either way, at a current valuation of over $ 48 billion, CrowdStrike shares are selling for just under 190 times free cash flow. No matter how fast the stock grows, and no matter how “the best” of its “breed” it is, this assessment is simply unrealistic – and sooner or later the CrowdStrike stock is. destined to fall.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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