I’ve been trying to convey to investors for a while now that a good company doesn’t necessarily make for a good stock buying opportunity. Network security technology provider CrowdStrike (NASDAQ:CRWD) is a great example of this concept. CRWD stock was a hot commodity in 2020 and the better part of 2021 as retail money flooded into the market. Yet, since hitting an all-time high above $298 on Nov. 10, shares have come crashing down, losing a third of their value in just over a month.

The market can be an odd place when you’re new to it. But, at the end of the day, it’s all about buying a stock at the right time in the bidding process. So, you need to ask yourself the following question: Am I buying this asset at the right price, or am I buying it simply because I think the company’s concept is promising?

While cybersecurity is an interesting play with a massive growth runway, I believe CRWD stock is overvalued and will fall further from current levels.

CrowdStrike Faces Growing Competition, Market Headwinds

The work-from-trend has increased the need for cybersecurity, but with any growing market comes growing competition.

Last month, Morgan Stanley analyst Hamza Fodderwala initiated coverage of CRWD stock with an “underweight” rating. Fodderwala noted that CrowdStrike was a beneficiary of the trend toward remote work and had become an early leader in endpoint detection and response (EDR) security. However, newer entrants in the space are undercutting CrowdStrike’s prices by 15% to 20%.

If CrowdStrike wants to sustain its market share, it really only has two options. It could drastically cut its prices to beat out its competitors or it could spend heavily on research and development to work on product differentiation. Regardless of which path the company chooses, it’s likely to dent its top-line growth. 

The success of CRWD stock during 2022 and 2021 was driven in part by a low-interest-rate environment where investors could stock up on margin accounts and make risky bets on growth stocks. However, we’re set for a higher interest rate environment in the coming years, which will diminish investors’ access to capital.

Higher interest rates also erode the future cash flows of companies. Institutional investors tend to value a stock based on its potential future cash flows. This could be an issue for CrowdStrike given that nearly three-quarters of its float is currently held by institutions. If they decide to bail on the stock due to cash flow concerns, we’re likely to see a capitulation in the share price.

Overvalued is an Understatement

There’s been much debate surrounding the usage of price multiples when valuing growth stocks, but two that can be used throughout a company’s lifecycle are the price-to-sales ratio and the price-to-cash-flow ratio. They’re even used in venture capital acquisitions at times.

Even after losing a third of its value, CRWD stock remains insanely overvalued based on the generally accepted thresholds of these two ratios. Shares are trading at nearly 35 times sales and 86 times cash flow. 

The final point I’d like to discuss is the firm’s ratio of goodwill to other intangible assets. CrowdStrike has 3.2 times the goodwill assets on its balance sheet relative to other intangible assets. This tells us two things. First, acquisition growth has taken priority over internal growth. Second, CrowdStrike is overpaying for its acquisitions, in turn causing a lower intrinsic value for its stock price.

The Bottom Line on CRWD Stock

Changing industry and stock market dynamics have caused CrowdStrike to become less appealing to investors. Yet, even after the sharp sell-off in the shares, valuation remains an issue.

All things considered, I’d say CRWD stock has run its course for now.

On the date of publication, Steve Booyens did not hold any long or short positions in any of the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.