CrowdStrike Stock Plunges 6% in a Month: Time to Cut Losses?

Barchart·03/21/2025 15:02:12

CrowdStrike Holdings, Inc. CRWD has been on a downward spiral, shedding 6% in the past month, leaving investors questioning whether it’s time to cut their losses. The once high-flying stock, which touched a 52-week high of $455.59 on Feb. 19, is now down 19% from that peak. After posting an impressive 31.6% year-to-date (YTD) gain by mid-February, the stock’s YTD performance has dwindled to a mere 7.9%.

CRWD Stock Price Performance

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Several factors are weighing heavily on CrowdStrike, including a federal investigation into its controversial $32 million deal with Carahsoft, broader macroeconomic headwinds, and disappointing profit guidance for fiscal 2026. With growing regulatory risks, valuation concerns, and market volatility, it appears prudent for investors to sell CRWD for now.

Legal Scrutiny on CrowdStrike Raises Serious Red Flags

CrowdStrike is currently under federal investigation by the U.S. Department of Justice (DoJ) and the Securities and Exchange Commission (“SEC”) over a $32 million deal with Carahsoft Technology. Bloomberg was the first to report the matter on Feb. 21, which further revealed that the transaction was intended to provide cybersecurity tools to the Internal Revenue Service (“IRS”). However, reports indicate that the IRS never purchased the products, raising suspicions of financial irregularities.

The investigation is examining whether CrowdStrike engaged in "pre-booking" or channel stuffing, where revenues from incomplete or dubious transactions are prematurely recognized to inflate financial results. The deal, which closed on the last day of the fiscal quarter in 2023, is believed to have contributed to CrowdStrike’s earnings beat and subsequent 10% stock price surge, per the Bloomberg report.

While CrowdStrike maintains that it handled the transaction appropriately, the legal uncertainty casts a shadow over its credibility. If regulators uncover accounting misconduct, the company could face fines, legal expenses, or even reputational damage. With the case still under review, this uncertainty adds significant downside risk to the stock.

Broader Market Sell-Off Adds Pressure on CRWD

CrowdStrike’s decline is also being exacerbated by broader market weakness. The stock market is facing macro headwinds from the escalating tariff war, which have spooked investors. Fears of a global economic slowdown have triggered a broader tech-sector sell-off, weighing on high-growth names like CrowdStrike.

Moreover, stubbornly high interest rates continue to weigh on the technology sector, making high-valuation stocks more vulnerable. With CrowdStrike already trading at elevated multiples, it is more susceptible to further downside as market conditions deteriorate.

CrowdStrike’s Weak Profit Guidance Weighs on Sentiment

Earlier in March, CrowdStrike delivered better-than-expected fourth-quarter fiscal 2025 results but issued disappointing profit guidance for the fiscal first quarter and full fiscal year 2026.

The company expects fiscal first-quarter adjusted earnings per share (EPS) of 64-66 cents, way below the Zacks Consensus Estimate, which was pegged at 94 cents at that time. Its revenue outlook of $1.1006-$1.1064 billion barely meets consensus estimates.

For fiscal 2026, the company projected adjusted EPS of $3.33-$3.45, falling short of the Zacks Consensus Estimate of $4.36. While revenue growth is still anticipated, the company has warned of rising costs and margin pressures, which could erode its profitability. This weak outlook has disappointed investors, adding to concerns about the company’s growth trajectory.

CrowdStrike Stock Valuation Remains Steep

Even after its recent decline, CrowdStrike continues to trade at lofty valuations, making it vulnerable to further correction. The stock trades at a forward 12-month price-to-sales (P/S) ratio of 18.63, significantly higher than the Zacks Security industry average of 13.22.

CRWD Forward 12-Month P/S Ratio

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CRWD also trades at higher valuation multiples against industry peers such as Palo Alto Networks PANW, Fortinet FTNT and CyberArk Software CYBR, which have a forward P/S ratio of 12.16, 10.91 and 12.5, respectively.

CrowdStrike’s premium valuation leaves it with little room for error. If the company fails to meet growth expectations or faces any negative developments in the DoJ and SEC probe, the stock could face further downside risk.

Conclusion: Time to Sell CrowdStrike Stock

Given the mounting legal risks, weaker earnings guidance, and broader market pressures, it appears prudent for investors to sell CrowdStrike stock for now.

The DoJ and SEC probe into its financial practices introduces significant legal uncertainty, which could lead to financial penalties or reputational damage. Furthermore, the disappointing profit outlook for fiscal 2026, coupled with rising costs and deteriorating margins, makes this Zacks Rank #4 (Sell) stock less attractive in the near term.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Despite its leadership position in cybersecurity, CrowdStrike’s steep valuation, regulatory risks, and macroeconomic headwinds create an unfavorable risk-reward profile. Investors may be better off locking in profits and seeking opportunities elsewhere until the legal and financial clouds clear.

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This article originally published on Zacks Investment Research (zacks.com).

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