Stock splits can create a lot of excitement among investors, so even though they do nothing to change the fundamental value of the underlying company, anticipation of such financial events can sometimes result in a stock booking some solid short-term gains. However, long-term investors also get excited about stock splits, because there's usually only one condition under which they occur: The stock had already risen to a level where management felt compelled to split it.
Gains like that indicate a strong investment — and Wall Street's latest stock-split stock has provided investors with some great returns since its initial public offering.
CrowdStrike (CRWD +1.45%) debuted on the public markets back in 2019, and if you purchased the stock on its first trading day and held on, you're up over 1,000% on your investment. That's a fantastic return in just about seven years of trading, and many investors would be thrilled with that. As a result of its share price gains, it's enacting a 4-for-1 stock split at the start of July. But is there room for more growth?
Image source: Getty Images.
CrowdStrike offers all sorts of cybersecurity products, starting with endpoint protection. This is the base capability of its software, and helps protect network endpoints from bad actors. On top of that, CrowdStrike offers 33 other modules, ranging from artificial intelligence (AI) agents to cloud security to threat hunting. Overall, the company believes that these markets offer a cumulative $149 billion market opportunity.
But that's just the start. Generative AI isn't just being used by businesses to improve efficiency; it's also being used to identify and exploit vulnerabilities, making top-notch cybersecurity software a must-have for all businesses. As a result, the cybersecurity market is expected to rapidly expand over the next few years, leading to a $325 billion market opportunity by 2030. That leaves plenty of room for CrowdStrike to expand, which it is doing a great job of right now.
CrowdStrike likes to focus on its annual recurring revenue figure over its total revenue because that paints a better picture of how its subscription business is expanding. In the first quarter, it rose 24% year over year to $5.51 billion. That's a solid growth rate, and CrowdStrike should be able to grow at a high double-digit pace for some time due to huge cybersecurity demand. This could lead to future success, but there is one more thing investors need to watch out for: profits.
CRWD Profit Margin (Quarterly) data by YCharts.
CrowdStrike's profitability over the past few years has been poor at best. A large part of that is a result of its prodigious stock-based compensation program. In Q1, it distributed over $317 million in stock-based compensation. That's about 23% of CrowdStrike's total revenue, and that has a significant impact on CrowdStrike's bottom line. It's barely profitable.
If CrowdStrike can start to increase its profitability over the next few years, then I have confidence that it's a great stock to buy right now, even before the stock split. However, if it doesn't start to turn the profitability corner, further market-crushing returns may be harder to come by.
Keithen Drury has positions in CrowdStrike. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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CrowdStrike has delivered solid returns for shareholders over the past year.
Wall Street's Latest Stock-Split Stock Is Up Over 1,000% Since IPO and Looks Like a Strong Candidate for More – The Motley Fool
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