Piper Sandler cuts CrowdStrike as risk/reward ‘less favorable’

Piper Sandler downgraded CrowdStrike Holdings Inc. (NASDAQ:) to Neutral from Overweight in a note Tuesday, citing valuation concerns despite continued optimism on the company’s future.

“Shares have deservedly risen to the highest revenue multiple of any public software company above $75B in market cap,” the analysts note, adding they “do not see a near-term catalyst for raising” their $400 price target.

This downgrade is a “valuation call,” according to Piper Sandler. They acknowledge CrowdStrike’s strong performance and momentum but believe the current stock price has already priced in much of this future growth.

The firm adds that by reaching an annual recurring revenue (ARR) of $3.6 billion and a fiscal 2025 revenue forecast exceeding $4 billion, CrowdStrike’s large scale makes significant upside more challenging as growth rates face the “law of large numbers.” This could lead to returns lagging behind other cybersecurity companies.

Further, Piper Sandler highlights CrowdStrike’s premium valuation. Compared to similar software companies, CrowdStrike boasts the highest valuations in terms of both forward-year sales (18.9x) and free cash flow (57x).

Despite the downgrade, Piper Sandler remains “excited about the second act for CRWD,” citing its cloud, identity, logging, and IT offerings. They acknowledge CrowdStrike’s impressive execution and strong metrics but believe the current price reflects this optimism.

“We are optimistic about the company longer term as well as the opportunity, just not the stock over our 12-month investment horizon,” concludes Piper Sandler.