CRWD And The Bifurcated Market Thesis IV

Wednesday’s action in Bumble (BMBL) – which rallied 42% on 20x average volume – provided more evidence for my bifurcated market thesis which has been dawning on me over the last month. Thursday the stocks to watch on this front are cloud security platform Crowdstrike (CRWD) and cloud contract software company Docusign (DOCU). CRWD reported earnings Wednesday afternoon so I’ll focus on it here. (DOCU reports Thursday after the close).

(Click on image to enlarge)

As you can see in the chart above, CRWD dropped ~50% from mid-November to late January. It rallied +8% into earnings in Wednesday’s relief rally and is up another 13% premarket on a solid earnings report. 4Q21 revenue of $431 million was +63% from a year ago and EPS of 30 cents compared with 13 cents. 1Q22 and full year 2022 guidance were both solid as well. While CRWD is still expensive at ~20x forward revenue guidance and ~150x forward EPS guidance, great early stage growth companies simply do not trade at the multiples mature companies do. It’s apples and oranges.

The action in CRWD today looks poised to provide further evidence that some early stage growth companies – what I have termed “the leaders of tomorrow” – are in the bottoming process. If you own a normal size position in CRWD, I would sell half into this rip as I did with BMBL yesterday – but I would hold half too. While I don’t expect a V-shaped rally due to contractionary macroeconomic forces (and I do expect massive volatility), these stocks appear to me to be in the bottoming process and it is time to start initiating positions because they will be the leaders of next bull cycle.

The big gains in these names are still years in the future as we work off the excesses of the massive 2009-2021 bull cycle but they’re coming – as they always do. Go small for now and we’ll keep monitoring things for when it’s time to get more aggressive.


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