Here's Why I'm Not Selling CrowdStrike Stock --Yet

At the start of July, CrowdStrike (NASDAQ: CRWD) investors were a happy bunch. The stock was up over 50% for the year and doing incredibly well.

Unfortunately, CrowdStrike stumbled over its own feet when it launched an update with an error that caused millions of devices to crash. This was claimed by some to be the biggest IT outage in history, which isn't something you want hanging over your head.

The aftermath of that issue caused the stock to fall by about 35% from its all-time highs. Most people would likely have seen this as a clear sell sign, as the optics of this failure could spill over into its business.

However, I'm not to that point. I don't think panic-selling CrowdStrike is a good idea, but I may change my mind after more information comes to light in a few weeks.

CrowdStrike's platform is still the best in its industry

CrowdStrike provides one of the most vital services in today's market: cybersecurity. What many people are forgetting after this self-inflicted damage is that CrowdStrike has prevented countless cyberthreats that could have caused similar (or worse) outages.

CrowdStrike's software monitors activity and determines what is normal and what could constitute a threat. Once it detects a threat, it shuts down network access to this device.

This is the primary function of the CrowdStrike Falcon platform, but customers can also add more functionality. With products in the cloud security, identity protection, and threat intelligence space, there are more than 20 modules that customers can add to the base product.

At the end of Q1 FY 2025 (ending April 30), 65% of CrowdStrike's customer base used at least five modules. That's a deeply integrated software with wide functionality, and replacing it would be costly, difficult, and time-consuming. Furthermore, its customers would likely have to piece together the same offerings from different cybersecurity vendors, which could cause some compatibility issues. There is very little chance this piecemeal option is cheaper or more effective, so I rate the chances of a mass exodus from CrowdStrike's product as fairly low.

CrowdStrike already released its indictment review report and has vowed to make changes, so this does not happen again. Whether the market regains confidence in the company or not remains to be seen, but CrowdStrike cannot afford another outage like this.

This isn't the first time a company has had a significant public issue. Many have happened before; some companies recover, while others never do.

Take Chipotle, for example. From 2015 to 2018, it had multiple health scares from its food, and while that affected its business in the short term, it had no effect on the long-term outcome. Customers obviously had other food choices available, but they kept coming back to Chipotle because of the quality of the restaurant.

This is a story CrowdStrike investors can latch on to. I might have a different opinion if CrowdStrike weren't best-in-class or highly integrated into thousands of companies. But right now, I don't think it's time to sell.

What would cause me to sell?

However, that could all change when CrowdStrike reports Q2 earnings around late August to early September. That will be a must-listen conference call, as management will undoubtedly get a barrage of questions from analysts trying to understand how the outage affected business.

I will be looking to see if management reports a significant departure of its customer base. I'm not terribly concerned if it sees some slowdown in new contracts signed. With the widespread news coverage of this outage, nearly all clients who were going to sign a contract with CrowdStrike will likely reassess.

This will undoubtedly cause some deals to fall apart or not be worth as much money due to CrowdStrike sweetening the deal to get clients to the signing table, but I'm not concerned about the short term.

CrowdStrike's full-year revenue guidance will be my biggest focus. If it stays the same, that's great news. If it dramatically falls, I'll likely be headed for the exit, indicating some of its long-term subscription clients have left.

Until we have that information, everyone is just guessing about CrowdStrike's stock . However, I'm fairly confident CrowdStrike will stay strong throughout this adversity and remain one of the best cybersecurity investments on the market.

Keithen Drury has positions in CrowdStrike. The Motley Fool has positions in and recommends Chipotle Mexican Grill and CrowdStrike. The Motley Fool recommends the following options: short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy .