Just checked my brokerage app this morning, and my CrowdStrike position is currently up 651%.
(My only regret is I didn’t buy more)
It was also a stock I highlighted in early 2022 after it was badly beaten down…
But in its last two financial years, CrowdStrike has lost a combined $178 million… yet since the end of 2021, its share price has nearly quintupled.
However, if you judged CrowdStrike by its PE ratio (which was about 5,900 the last time I checked), you'd never have touched it.
And this single metric alone trips up more investors than any other…
High PE? Bad
Low PE? Bargain
If only it were that simple…
So what did I see that others missed?
Cash and contracts.
CrowdStrike, like most enterprise companies, sells subscriptions…
And by the end of Q1 the yearly value of those contracts had reached $5.51 billion, up 24%. With record free cash flow on top of it…
So while the accounting profits lag behind, the cash is already there.
A high P/E tells you the market expects a lot… but it says nothing about whether the business will deliver.
Which brings me to another stock that gets called overvalued from every angle…
Tesla… which currently trades at a PE of around 350…
On the surface the two companies look oddly similar.
Both grew revenue 25% in their latest quarter…
Tesla delivered a record 480,126 cars while subscribers to its self-driving software rose 56% to 1.48 million.
It also sits on roughly $27 billion in net cash
The difference is what the cash is doing.
For every $100 of sales last quarter, Tesla kept $1.40 as operating profit, down from $4.10 a year earlier.
Free cash flow came in at negative $1.09 billion as Tesla expects to spend more than $25 billion this year on projects including robotaxis and Optimus robots
CrowdStrike was generating cash while its profits caught up…
Tesla is spending cash while it waits for new businesses that are still tiny...
That can work, and Tesla can afford the wait.
But it's a very different bet, and today's price already assumes it pays off.
Which is why inside Capital Gains Multiplier, I went through both sides of the Tesla case in far more depth, including what each part of the business needs to deliver to justify today's price.
I’ll be opening CGM up again next month… so stay tuned
Oliver