Image source: Getty Images
The equity markets are expected to remain volatile over the next 12 months as global economies continue to wrestle with a wide range of macroeconomic challenges. In 2022, the sustained sell-off experienced by investors has dragged valuations of stocks across sectors significantly lower.
The high-growth tech stocks have been the worst hit and cybersecurity companies have not been spared. Shares of BlackBerry (TSX:BB)(NYSE:BB) and CrowdStrike (NASDAQ: CRWD) are trading 57% and 42% below 52-week highs, respectively. But cybersecurity is among the fastest-growing verticals in the world, making companies part of its universe a compelling long-term bet.
The suite of services and products offered by cybersecurity companies enjoy robust demand. Notably, businesses are responding to the enterprise-level shift towards digital and the rise in online threats all over the world.
So, let’s see which, between BlackBerry and CrowdStrike, is the better cybersecurity stock right now.
The bull case for CrowdStrike stock
Valued at a market cap of US$40 billion, CrowdStrike has increased sales from US$249.8 million in fiscal 2019 to US$1.5 billion in fiscal 2022 (ended in January). It ended the latest quarter with a gross retention rate of 98%, while its net retention rate surged over 120%.
Here, gross retention rate indicates the rate at which customers renew their subscriptions. While net retention rate suggests existing customers increased spending by more than 20% year over year on the CrowdStrike platform.
CrowdStrike’s stellar retention rates allowed the company to report annual recurring revenue of more than US$2 billion in fiscal Q2 2023. This was an impressive 253% jump from the same period in 2021.
With this enviable growth, CRWD stock should likewise rise. Management expects adjusted profit of US$1.87 per share in fiscal 2024, compared to just US$0.67 per share in fiscal 2022. Furthermore, CrowdStrike is targeting an operating margin of at least 20% and a free cash flow margin of 30% longer term. It ended Q2 with gross margins of 77%, which is quite solid.
CrowdStrike’s free cash flow has grown from US$12 million in fiscal 2020 to US$442 million in fiscal 2022. In the last two quarters, this metric surged by 54% year over year to US$293 million. Simultaneously, lower expenses allow the company to benefit from high operating leverage and improve the bottom line.
CRWS stock is trading at a discount of almost 40% compared to consensus price target estimates.
Is BlackBerry stock a buy right now?
BlackBerry has been among the worst-performing tech stocks on the TSX in the last five years, as it has declined by over 50% since October 2017. The company moved away from manufacturing smartphones to focus on building a suite of enterprise-related security services. But it has, time and again, failed to impress investors.
In Q2 of fiscal 2023 (ended in August), it reported a revenue of US$168 million, a decline of 4% year over year. BlackBerry remains unprofitable and reported an adjusted net loss of US$29 million or US$0.05 per share in Q2.
In the August quarter, around two thirds of total sales came from the cybersecurity business, while the internet of things accounted for 30%, followed by licensing sales at 4%. In Q2, BlackBerry’s cybersecurity sales grew by a paltry 6% while it fell by 3% year over year in fiscal 2022. The top line is forecast to contract by 4% in fiscal 2023. Further, an adjusted loss per share is estimated at $0.16 in fiscal 2024.
The Foolish takeaway
BlackBerry is struggling to grow sales even though it’s part of the rapidly growing cybersecurity market. Right now, CRWD stock is a much better bet compared to BlackBerry, given the former’s revenue growth and widening profit margins.
Written by: Source link