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Warren Buffett is famous as an investor. While CrowdStrike (NASDAQ:CRWD) may be considered expensive based on its price-to-earnings (P/E) ratio compared to the cybersecurity sector, trading at very cheap relative to historical valuations right now. That's because it installed a faulty update, which caused 8.5 million of its customers' devices to crash.
Disaster means opportunity
On July 19, news broke worldwide that CrowdStrike had caused Windows devices to fail due to a faulty sensor update. Although it worked quickly to solve the problem, huge disruption and billions of pounds of damage was caused to the businesses and industries affected. The stock price fell by 40% following the incident.
Now, some investors say the company has damaged its reputation forever. The claim is that CrowdStrike could face class action lawsuits, regulatory fines, and the worst part, significant loss of customers and reputation. As a result, the P/E ratio has contracted from 130 as the 10-year median to 68 as I write.
This may sound alarming at first, but some of the most successful investors in history disagree. They like to take advantage of the fear of others. As Buffett famously said, “Be afraid when others are greedy, and be greedy when others are afraid”.
How much growth can I achieve?
I believe that CrowdStrike investors who bought shares just before the crash are not in a good position now. Alternatively, I think if I buy stocks now, after the crash, I might get solid 12 month returns.
The current analyst consensus is that the investment could grow as much as 50% in price by this time next year. I'm not a little pessimistic, as I think the low pressure and low mood can last a long time.
It may take time for the market to like the company again. However, in my opinion, CrowdStrike is too important to the security of the tech ecosystem to be scrapped forever.
One more mistake, and that's it
Despite my optimism, bearish investors are right to say that if the business has another big problem it will be difficult to recover. The administration is already walking on eggshells after this major disruption. Therefore, I need to make sure that I hold stocks as part of a diversified portfolio when investing. This will help reduce my risk.
And, with CrowdStrike still trading at a premium even after the crash, there is still uncertainty about whether the stock can sustain much higher. The previous estimate may have been too optimistic. This big event is likely to bring stocks back to reality. If so, the investment may no longer be a long-term winner.
Courage is at the forefront of investing
Investing in the stock market is not without risk. The key is to do the right research and then have the courage to follow through and invest with confidence.
I think having CrowdStrike as 5% of my portfolio and buying right now would be a smart move. So, I might put money into it in early August.
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