CrowdStrike stock is nearing its ATH: Top 3 reasons it may reverse soon

CrowdStrike stock continued its recent rally today, July 14, and is slowly nearing its all-time high of $209.55. It has jumped by 80% in the last six months, bringing its valuation to over $212 billion. 

CRWD and other top cybersecurity companies like Fortinet, SentinelOne, and Palo Alto Networks have also soared. The general thesis is that the rise in AI agents will lead to more demand for cybersecurity spending. Still, there are some reasons why the stock is due for a reversal.

CrowdStrike stock may drop because of mean reversion

One technical reason why the CRWD stock may reverse soon is known as mean reversion. This is a technical concept where stocks and other assets reverses and returns to their historical averages over time. 

In CrowdStrike’s case, the stock has jumped to $208.8, which is much higher than the 50-day moving average of $167 and the 200-day level of $133. As such, there is a risk that it may reverse and move towards these averages. 

This reversal may happen before or after its earnings on August 26. It may also happen after other top cybersecurity companies publish their financial results.

CRWD stock chart | Source: TradingView

CRWD stock may experience a bearish divergence

The other technical risk is that the stock is forming a bearish divergence pattern. This is a situation where an asset is rising while the top oscillators are moving downwards. 

In this case, the Relative Strength Index (RSI) has dropped from a high of 86 to the current 68. Also, the Percentage Price Oscillator (PPO) formed a bearish crossover and is still pointing downwards. In most cases, an asset normally retreats after forming a bearish divergence.

CRWD stock chart | Source: TradingView

CrowdStrike is a highly expensive company

Meanwhile, data shows that CrowdStrike is a highly overvalued company. SeekingAlpha data shows that the company has a forward price-to-earnings ratio of 152, higher than the technology sector median of 24. 

With its growth metrics included, the company has a forward PEG ratio of 5.40, which is also higher than the sector median of 1.3. These valuation multiples likely explain why analysts are less optimistic about the company.

Data shows that several analysts have lowered their targets recently. Rosenblatt Securities lowered the target from $206.25 to $206, while Needham slashed it to $235. Benchmark’s Yi Fu Lee lowered the target to $230. While these targets are higher than the current price, they point to marginal gains from the current level.

Analysts expect the company's annual revenue to grow by 23% to $5.9 billion this year, followed by another increase to $6.91 billion next year. The company has also continued to deliver solid profit growth. Despite these strong fundamentals, its valuation and technical indicators suggest the stock could face a near-term pullback.

READ MORE: CrowdStrike shares drop on ARR shortfall despite strong quarterly results