CrowdStrike Stock Is Flat and Close to Full Value - How to Best Play This?

CrowdStrike Holdings (CRWD) stock has been trading flat for the past two months. It looks close to full value now. So, what is the best play here, especially for shareholders? Shorting out-of-the-money puts is one way to make extra income.

CRWD is at $363.00 in midday trading on Tuesday, Jan. 7. This is roughly flat from where it was a month and a half ago on Nov. 25 ($363.68). That was right before CrowdStrike released its fiscal Q3 results on Nov. 26. 

However, in the last 3 months, CRWD has risen significantly (+26.5%) from $286.97 on Oct. 7. So, is there any further upside left in CRWD stock? If not, what is the best play? This article will delve into these issues.

CRWD Stock Could Be Close to Full Value

I discussed CrowdStrike stock's value in my Dec. 6, 2024, Barchart article: “Is CrowdStrike Holdings Stock Fully Valued? Maybe, But Its FCF Outlook Is Strong.”

For example, assuming the cybersecurity company can continue making strong free cash flow (FCF) margins it could generate $1.338 billion in FCF. That is based on analysts' revenue estimates of $4.77 billion and a 28% FCF margin.

However, I may have been too conservative in my FCF margin forecast. For example, its latest quarterly FCF margin was 23%, but its 9-month FCF margin was 29%.

Moreover, in the last 12 months (LTM) ending Oct. 31, 2024, according to data from Seeking Alpha, Crowdstrike generated just $1.163 billion in FCF. That represented 31% of its LTM revenue of $3.741 billion.

So, let's forecast a slightly higher 29% FCF margin for 2025:

   $4.77b forecast sales x 0.29 = $1.3833 billion FCF

Next, using a 1.5% FCF yield metric, we can estimate its future market cap:

   $1.3833b / 0.015 = $92.22 billion mkt cap

That is 3.4% higher than its present $89.18 billion market cap. In other words, the target price is 3.4% higher:

   $363 x 1.034 = $375.34 per share

The bottom line is that this is still very close to the present stock price. 

Moreover, analysts have similar price targets. For example, Yahoo! Finance shows that the average price target for 52 analysts is $377.35. Similarly, Barchart's mean price target is $380.00. AnaChart's survey of 39 analysts is $401.63.

Given these close target prices, one way for conservative investors to play is to sell short out-of-the-money (OTM) puts. That way they can gain extra income while waiting to see if the stock falls to a lower buy-in target.

Shorting OTM Puts

I discussed this in my last article on Dec. 3, for the Dec. 27 expiration period. I showed that the $335.00 strike price puts had a $5.30 premium, giving investors an immediate 1.58% yield (i.e., $5.30/$335.00). 

This was for a strike price that was over 4% below the trading price and with a -0.28 delta ratio. That means it had less than a 30% chance of being assigned. 

As it turned out, CRWD stock closed on Dec. 27 at $354.99, so this put strike price remained out-of-the-money (OTM). That means the investor had no obligation to buy shares using the cash secured for the play.

So, now, it makes sense to repeat this play. For example, look at the Feb. 7, 2025, expiration period, which is 31 days before expiration. It shows that the same $335 strike price now has a slightly higher premium of $5.75.

That gives investors who short these puts an immediate yield of 1.716% (i.e., $5.75/$335.00).

An investor who secures $33,500 in cash or buying power can enter an order to “Sell to Open” 1 put contract at this strike price. The account will then immediately receive $575.00 - hence the 1.716% yield (i.e., $575/$33,500 invested).

Moreover, this strike price is over 7% below the trading price, so this cash-secured put has a lower risk than the previous play. However, the delta ratio is similar at -0.22 or a 22% chance of ending up at $335.00.

In addition, even if the account is assigned to buy 100 shares at $335.00, the breakeven price is $335.00 - $5.75, or $329.25. That is 9.1% lower than today's trading price.

The bottom line is that CRWD stock could be close to full value here. However, one way to set a lower buy-in target price is to sell short OTM puts. That could give an investor a 1.72% yield over the next 4 weeks.

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.