CrowdStrike Holdings (CRWD), the cybersecurity company, released strong results on Tuesday, June 3. CRWD stock is up and could rise further based on its strong free cash flow growth (FCF) and FCF margins. One way to play it is to sell short out-of-money puts.

CRWD closed at $462.94 on Thursday, June 5, giving the stock a market cap of $115.4 billion. That's is close to its recent peak. So, could it rise further?

This article will show why CRWD stock is worth 15% more with a FCF yield valuation method. It could be worth almost $133 billion, or $532.38 per share.

Strong Free Cash Flow (FCF)

CrowdStrike Holdings reported on June 3 that revenue rose 20% Y/Y and Annual Recurring Revenue (ARR) was up 22%. And compared to the prior quarter (Q/Q), sales were up 4.2%.

Moreover, the company generated strong free cash flow (FCF) and FCF margins (i.e., FCF/Revenue). This can be seen in the Supplemental Disclosures table from the company below.

It shows that FCF rose from $240 million last quarter and a 22.7% FCF margin to almost $280 million and a 25.3% FCF in the latest quarter. In fact, its FCF margins have been improving since it had a major software outage last July, which caused huge problems for its clients.

This caused the company to lose clients and spend more to fix its software updates. That lowered its FCF and FCF margins, but you can see in the table that these are turning around.

As a result, we can project significantly higher FCF going forward.

For example, management projects this year's revenue will rise to between $4.74 billion and $4.81 billion (i.e., $4.775 billion). That is 20.8% higher than last fiscal year ending Jan. 31, 2025 ($3.95 billion). 

The market looks forward, so we should average the forecasts for the next two years and then apply an FCF margin to this forecast. 

Seeking Alpha's survey of 44 analysts is for $4.78 billion in 2025 and $5.84 billion next year. That is an average next 12 months (NTM) run rate revenue of $5.31 billion.

  $5.31b x 25% FCF margin = $1.327 billion FCF NTM forecast

That is 25.8% higher than the $1.58 billion FCF it made last year. This implies CRWD stock could be worth significantly more.

Target Price for CRWD Stock

One way to value CRWD stock is to assume 100% of its FCF is paid out to shareholders. That means that its FCF can be seen as a dividend and a dividend yield when divided by the market cap. 

For example, if we assume the market will give CRWD stock a 1.0% FCF yield, and apply it against the forecasted FCF, we can forecast its future market cap:

  $1.327b / 0.01 = $132.7 billion market cap

That FCF forecast is 15% higher than CrowdStrike's existing market value of $115.387 billion:

  $132.7b / $115.387b -1 = 1.15 - 1 = +15%

In other words, CRWD stock is worth 15% more, or $532.38 per share:

  $462.94 price today x 1.15 = $532.38 price target

Keep in mind that if CrowdStrike produces higher FCF margins each of the next 4 quarters, its intrinsic value will be worth much more.

For example, if its FCF margins rise to 28% from its present 25.3% level, the forecasted FCF will be almost $1.5 billion (i.e., $5.31b sales x 0.28 = $1.487 billion). That could push its market cap up to almost $149 billion, or +29% higher. 

In other words, a 12% rise in its FCF margin to 28% could push its market value up by 29%.

One way to play this is to sell short out-of-the-money (OTM) puts. That way, an investor can set a lower buy-in target and get paid while waiting for a lower price.

Shorting OTM Puts

For example, look at the July 3, 2025, expiry period. It shows that the $440.00 strike price put options, a level 5% below Thursday's trading price, have a midpoint premium of $9.50.

That means that a short-seller can make an immediate yield of 2.16% (i.e., $9.50/$440.00 = 0.02159) in less than one month.

This is a great way for a potential investor to set a lower buy-in price and then get paid while waiting for CRWD stock to fall. In any case, the actual breakeven point is lower:

  $440.00 -$9.50 = $430.50

That is 7.0% below the closing price on Thursday ($462.94). In other words, there is good downside protection for the short-seller of these puts. Investors can study Barchart's Learn Center on options to better understand the options trading risks.

The bottom line is that CrowdStrike's strong FCF margins make the stock look undervalued here. One way to play this is to sell short OTM puts in nearby expiry periods.

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.