One of the toughest skills to learn and apply when using the approach from Saul’s Knowledgebase is not falling in love with a successful position and thus holding it too long.
So I carefully read Zoro’s “Why I Trimmed CRWD” post and BriansMot’s response yesterday.
This morning, I was very interested in the recent TMF video SentinelOne vs. CrowdStrike – Which Stock Should You Buy? Round 2 by Eric Cuka (TMFFiredUpWealth)
Here are my notes from the video, plus a few observations.
With a market cap of ~ $13.6B, S (SentinelOne) had $45.75M in revenue for the last quarter for an 82 P/S Ratio versus CRWD’s (CrowdStrike) ~$57.13B market cap with $337.69M revenue and a 49 P/S. (3 – 4 minute mark)
Rule of 40: S = 22% vs. CRWD = 107%
Net Dollar Retention: S =129% vs. CRWD = 125%. (5:45 mark)
CRWD is expected to grow at ~mid 60’s CAGR which is half the growth rate of SentinelOne (5:58 mark).
One argument for S is that CRWD does need human analysts whereas SentinelOne is AI which makes it easier and faster to customize, especially for companies that still have physical servers on premise. There are companies with a hybrid model with both cloud and on premise physical servers, so S has an advantage over CRWD with those.
However, the announcement that CRWD and UiPath(PATH) are partnering suggests that this argument may not hold up in the near future.
UiPath and CrowdStrike, leaders in their respective fields, are the first RPA and Endpoint Security vendors to come together to extend endpoint security to RPA
It appears that CRWD has heard the number one argument for S over CRWD and responded in a way to give them an advantage over S (Someone with more technical expertise and experience in these fields would need to verify this). Evidently, companies will be able to eliminate the need for human intevention with CRWD’s endpoint security.
RPA makes it easy to build, deploy and manage software “robots” that emulate human actions interacting with digital systems and software, bringing scale, speed and consistency for improving business productivity and accelerating digital transformation.
A number of companies already use CRWD and PATH or both, so they should have strong reasons to use both in the future, and companies currently using only one now have incentives to use the combination.
Both CRWD and PATH are leaders in their fields. On the Gartner Magic Quadrant chart, CRWD is ahead of S in both “Ability to Execute” and “Vision,” although both companies are in the “Leaders’ quadrant (9:50 mark). PATH is the leader in its field on the Gartner MQ (14:15 mark).
Although S is growing almost twice as fast as CRWD, Eric Cuka has a hard time seeing path to profitability because S is burning cash and currently spends more on R&D than anyone, including CRWD. He sees a more solid path to profitability for CRWD. (20:20 mark)
The sector is highly competitive, so there is no real moat, but CRWD has more customers and is more well known. There is huge secular growth in cybersecurity and CRWD is probably the best of breed. Both clients and developers seem to agree that CRWD is best.
SentinelOne may have more potential for growth, but there is more risk as well.
Eric also notes that S is even more expensive than Snowflake (SNOW) (11:00 minutes) even though SNOW has more of a moat than S because of the competition in the endpoint security sector.
Based on the video comparison along with BriansMot’s reply and Saul’s expansion on those points in this thread, I am comfortable with CRWD at ~9% of my portfolio versus trimming it at this point.
[As an aside, earlier this year, I did sell out of or trim positions in PINS, PTON, TDOC, and ZM in order to buy UPST and LPSD and add to CRWD, NET, ZI, and DDOG, so I am learning to be more agile thanks to this board].
In evaluating my CRWD position, I seriously considered Bear’s observation in the previous thread that It’s simply a company that’s had years of hypergrowth but has gotten to the point where its valuation and its deceleration are going to have to fight it out. That typically leads to a stock going sideways, especially when the market cap is over $50b or so. That’s what we’ve seen with Twilio and Docusign in the last 12 months (or more). The fall from grace from hypergrowth to GARP (growth at a reasonable price) can be a more jarring rerating than most folks expect – not that it necessarily comes with a great deal of downside – just a lot of opportunity cost.
For now, I’ll wait until the next quarter to see how CRWD and S compare, and look to see how much the PATH/CRWD announcement affects CRWD’s growth, especially to see if the QoQ growth decelerates or accelerates.
All the best,