CrowdStrike CRWD is currently trading at a high price-to-sales (P/S) multiple, far above the Zacks Security industry. CrowdStrike’s forward 12-month P/S ratio sits at 18.65X, significantly higher than the Zacks Security industry’s forward 12-month P/S ratio of 12.53X.

CrowdStrike Forward 12-Month P/S Ratio

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CrowdStrike stock has also remained highly volatile due to several macroeconomic and business-related factors. However, CRWD stock has outperformed the Zacks Security industry in the past six months.

CrowdStrike Six-Month Performance Chart

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The real question for investors is whether CrowdStrike's high valuation justifies holding the stock amid its current volatility, or it's time to sell the stock.

Key Challenges Faced by CrowdStrike

CrowdStrike is facing several challenges related to customers’ negative sentiments since the global IT outage incident on July 19, 2024. The company has been implementing the Customer Commitment Package to retain its customers, which includes product additions and discounts, hence compressing its revenue recognition and profitability.

Despite all these measures, the company’s upsell into existing customers showed signs of slowdown and the churn rate remained moderate. Moreover, a report by Bloomberg reported that CrowdStrike is currently under federal investigation by the U.S. Department of Justice and the Securities and Exchange Commission (SEC) over a $32 million deal with Carahsoft Technology.

The deal, meant to supply cybersecurity tools to the IRS, was reportedly never fulfilled, raising concerns of financial irregularities. Authorities are examining whether CrowdStrike engaged in pre-booking or channel stuffing to inflate financial results, while CRWD maintains that it handled the transaction appropriately.

The ongoing investigation creates legal and reputational risks, softening investors’ confidence. While CrowdStrike maintains that it handled the transaction appropriately, the ongoing investigation creates legal and reputational risks, softening investors’ confidence.

CrowdStrike Faces Competitive Pressure

Amid customer backlash and ongoing regulatory scrutiny that could damage CrowdStrike’s reputation, competitors may seize the opportunity to attract and convert its customer base. The cybersecurity space already contains players like Palo Alto Networks PANW, SentinelOne S and Cisco CSCO, who provide similar products like CrowdStrike.

For instance, CrowdStrike’s Falcon Extended Detection and Response that connects multiple layers, including email, endpoints, servers, cloud workloads, and network, to provide a comprehensive security competes with SentinelOne’s Singularity platform, which provides AI-powered endpoint protection and XDR. SentinelOne also offers Autonomous threat hunting and remediation like CRWD.

Cisco also provides extended detection and response  (XDR) features combined with other Cisco products. Like CRWD, Palo Alto Networks provides endpoint protection through Cortex XDR, which combines endpoint, network, and cloud data to detect and respond to threats. On the other hand, Palo Alto Networks’ Prisma Cloud competes with CRWD’s Falcon Cloud Security.

All the above factors combinedly could weigh on CRWD’s profitability in the near term. The Zacks Consensus Estimate for CrowdStrike’s fiscal 2026 earnings indicates a year-over-year decline of 13.5%.

CrowdStrike’s fiscal 2026 earnings have been revised downward by 90 cents from $4.30 to $3.40 in the past 60 days, implying investors’ skepticism about the stock’s near-term performance. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

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Conclusion: Sell CrowdStrike Shares Now

CrowdStrike is battling mounting legal risks and slower upsells. 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.

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

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