The worst may be over for CrowdStrike. Is it time to buy the stock?

The moment CrowdStrike (NASDAQ:CRWD) What investors expected happened: The company released its second-quarter results. Everyone who invested in the stock wanted to know how much the July software update issue that crashed millions of devices had affected the business, because it could have completely ruined a less established company.

But the result could have been much Things have taken a turn for the worse for CrowdStrike, and it seems like the worst is behind it. So is it time to buy the stock? Or are there other warning signs to be aware of?

CrowdStrike's cybersecurity platform is still a top choice

CrowdStrike is a leading cybersecurity company. Its software protects millions of devices from external access through the Falcon platform. However, its products are not limited to endpoint protection. CrowdStrike has 28 modules that provide different cybersecurity capabilities, making the platform virtually a one-stop shop.

This is an important point for the company, as it may have seen a greater impact from the outage if its product line had been more narrowly focused. Because CrowdStrike is deeply embedded in its customers' cyber protection plans, it is harder to deviate from them. In fact, 65% of all customers use at least five modules, and 29% use at least seven. In addition, 48% of the largest customers (those who spend at least $100,000 annually on the software) have at least eight modules.

An important indicator of whether the outage impacted CrowdStrike's business was annual recurring revenue (ARR) growth and revenue forecast for the year.

In the second quarter of fiscal 2025 (ended July 31), CrowdStrike's ARR increased 32% year over year to $3.86 billion, after adding $218 million in the quarter. While the growth rate barely slowed from the first quarter's 33% pace, total added ARR increased from the first quarter's $212 million.

It's important to remember that the incident occurred on July 19, just days before the end of the quarter, so these contracts for new deals may have been signed before the outage, making this metric less meaningful, although the third-quarter ARR number should be the focus for investors.

As for revenue guidance, management expects $982 million in the third quarter and $3.896 billion for the fiscal year. Compared to the $3.994 billion management had forecast for the year at the end of the first quarter, it looks like the outage could cost CrowdStrike around $100 million in revenue.

This is lost business that is unlikely to be recovered. That is, it would have much worse for the company.

But is it worth buying CrowdStrike here?

The stock is still very expensive despite its decline

CrowdStrike's market position has not changed. The company is still a top-notch cybersecurity provider with top-notch software, but now has tighter controls over the update process.

This leadership resulted in the stock being very expensive before the July 19 incident. However, it is still quite expensive now.

CRWD PS Ratio data by YCharts

CrowdStrike trades at 61 times free cash flow and 19 times sales – both of which would be no small value even for a company that has not been involved in a major incident.

Therefore, investors must continue to be cautious when buying CrowdStrike shares. In addition to the relative costs, there are still questions about the long-term impact of the incident on CrowdStrike's business model.

CrowdStrike is a land-and-expand model, meaning it onboards customers and then encourages them to buy more products after they become familiar with the platform. Management said on the second-quarter conference call that it expects “muted upsell dollars and higher contraction rates.” This could last longer than expected or have permanent effects, which would change some of the assumptions investors have about CrowdStrike stock.

Although I am still a shareholder of CrowdStrike, I think it is best to be patient. The stock is still trading at bullish levels and I would rather wait before buying more. The problem is that if the stock falls, it will likely be due to declining performance due to the impact of the update incident.

CrowdStrike is a difficult stock to analyze, and if you're not looking to invest for the long term, there are better options. However, CrowdStrike is still one of the best cybersecurity companies right now, so I'll continue to be a shareholder despite the difficult situation.

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Keithen Drury has a position in CrowdStrike. The Motley Fool has a position in CrowdStrike and recommends the company. The Motley Fool has a disclosure policy.