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Why You Shouldn't Just Follow the Crowd

This company is in a hot sector and just posted strong results, but that doesn't make it a buy .

With cyberattacks and fears surging in the wake of Vladimir Putin's invasion of Ukraine, security software stocks are buzzing.

But managing rapid growth brings its own challenges, and investor sentiment can get ahead of itself in such cases. 

Take CrowdStrike for example. 

While CrowdStrike  (CRWD) -  beat expectations for its fourth quarter earnings, investors should wait to add the stock, argues Stephen “Sarge” Guilfoyle.

The stock’s technical indicators are not showing favorable conditions, he wrote in a recent Real Money  column

“Other than that, relative strength is neutral, the Full Stochastics Oscillator looks to be rebounding off of nearly oversold conditions, while the daily MACD, though moving in the right direction, remains a mess,” . “Stay tuned though. This name is in my personal bullpen.”

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The cybersecurity company recently reported adjusted EPS of $0.30 and revenue of $431 million, which both beat Wall Street estimates. The company reported year over year revenue growth of 62.7%.

One positive factor is that CrowdStrike reached a new record annual recurring revenue (ARR) of $217 million as growth increased for a second consecutive quarter.

One major sticking point is Crowdstrike’s $333 million increase for goodwill among the t $3.62 billion in assets, an increase of $886 million.

“I don't love that,” Guilfoyle wrote. “Total liabilities less equity adds up to $2.58B. The balance sheet does pass the Sarge test, goodwill being the only item I did not like... even with a zero for that line, I would have given this balance sheet a passing grade.”

But Guilfoyle remains a fan of CrowdStrike.

“I like CrowdStrike,” he wrote. “I have for a long while. I always hold at least two cybersecurity stocks in my main portfolio. Currently, those names are from a quality point of view that I consider best of breed. That would be Palo Alto Networks  (PANW) -  , which has been a solid investment, and Zscaler   (ZS) - , which has been more difficult to manage. When capital flows more freely into technology and into growth, and I go to a third holding, CrowdStrike has been that third name.”