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Warren Buffett is famous for being a value investor. Mass coup (NASDAQ:CRWD) could be considered expensive based on its price-to-earnings (P/E) ratio compared to the cybersecurity industry, but it is selling at much cheaper valuations compared to historical ones right now. This is because it installed a faulty update that caused 8.5 million of its customers’ devices to fail.
Disaster means opportunity
On July 19, a global news story broke that CrowdStrike had unintentionally caused Windows devices to fail as a result of a faulty sensor update. While it worked quickly to resolve the issue, it resulted in significant disruption and hundreds of millions of pounds in damage to affected businesses and industries. The share price plummeted by 40% following the incident.
Now, some investors say the company has destroyed its reputation forever. They argue that CrowdStrike could face class-action lawsuits, regulatory fines, and, worst of all, a significant loss of customers and reputation. As a result, the price-to-earnings ratio has shrunk from 130, the 10-year median, to 68 at the time of writing.
At first glance, this may seem worrying, but some of the most successful investors in history are mavericks and like to profit from the fear of others. As Buffett famously said: “Be fearful when others are greedy, and greedy when others are fearful.”
How much growth could be achieved?
I think CrowdStrike investors who bought the stock just before the crash are not in a good position now. On the contrary, I think if I buy the stock now, after the crash, I could get a very solid return in 12 months.
The current consensus among analysts is that the investment could grow by more than 50% in price by this time next year. I am a little less optimistic, as I think the downward momentum and the feeling of discontent could last longer.
It may take some time for the market to return to the company's favor. However, in my opinion, CrowdStrike is too important to the security of the tech ecosystem to be taken down forever.
One more mistake and that's it
Despite my optimism, bearish investors are right in saying that if the company suffers another major crisis, it will be difficult to recover. Management is already walking on eggshells following this major service disruption, so if I invest, I need to make sure I own the stock as part of a diversified portfolio. This will help mitigate my risk.
Moreover, as CrowdStrike continues to sell at a high valuation even after the crash, there is still some uncertainty as to whether the stock can recover to record highs. There is a possibility that the previous valuation was too optimistic. This major event may have recalibrated the stock back to reality. If this is the case, the investment may no longer be a long-term winner after all.
Courage is paramount when it comes to investing
Investing in the stock market is never risk-free. The important thing is to do proper research and then have the courage to go ahead and invest the money with conviction.
I think having CrowdStrike as 5% of my portfolio and buying right now could be a smart move. Therefore, I may invest in it in early August.