After almost doubling the yields of the Nasdaq-100 so far in 2023, CrowdStrike (CRWD 3.25%) And Ticketing (BKNG 1.00%) Investors may wonder if they will be late to the party. Despite this recent rebound in share price, however, each stock is trading well below historical averages at its more relevant valuations.
CrowdStrike’s price-to-sales (P/S), for example, is near its all-time low at 13 — unlike earlier this year. Meanwhile, Booking’s price-to-earnings (P/E) ratio of 31 is very reasonable considering it has yet to return to pre-pandemic profitability.
More importantly, both companies are driven by megatrends that drive strong growth rates and substantial free cash flow (FCF) generation, making them two of the best stocks on the Nasdaq to buy and hold forever.
Let’s take a closer look.
CrowdStrike: The original AI juggernaut
Before it became fashionable for tech-savvy stocks to mention how they planned to use artificial intelligence (AI) in their operations, cloud-native cybersecurity expert CrowdStrike was already building on the premise of using AI to stop security breaches.
CrowdStrike filters 7 trillion weekly cybersecurity events across its ever-growing network and constantly feeds its AI with new data – creating even more robust network effects. Insights gleaned from this ridiculous amount of data are contextualized in CrowdStrike’s Threat Graph, which is used to look for malicious activity.
With 70 of the Fortune 100 and 271 of the Fortune 500 as customers, the volume of the company’s cybersecurity data points is enormous. With an 18% market share in the Endpoint Detection and Response (EDR) industry, CrowdStrike has maintained and expanded its leadership position for three consecutive years.
So, with this market leadership and widespread adoption by large enterprises, how does Crowdstrike continue to outperform the market?
The answer to that question lies in the company’s incredible dollar-based Net Retention (DBNR) rate of 125%. This measures the growth in spending by a company’s existing customers from one year to the next. A DBNR rate greater than 120% is generally considered exceptional, making CrowdStrike’s brand very promising. Additionally, the DBNR rate has been 120% or higher for 20 consecutive quarters.
Additionally, the company’s 23 (and counting) unique modules continue to be adopted quickly, with 62% of its 23,000 customers using five or more modules. That percentage of customers using five or more modules grew by 52%, underscoring CrowdStrike’s ability to upsell its customers on new products as they launch.
After a 48% increase in annual recurring revenue in the fourth quarter and a 9% FCF margin (even after eliminating stock-based compensation), CrowdStrike seems poised to continue dominating an increasingly important industry.
Book it just outside to start 2023
Booking Holdings is home to the most downloaded online travel agency apps worldwide and in the United States. It operates through six brands: Booking.com, Priceline, Agoda, Rentalcars.com, Kayak and OpenTable. With services such as travel accommodation, ground transportation, flights, activities, restaurants and travel search aggregates, Booking is the one-stop shop for all travel-related needs.
Although the pandemic severely impacted the company’s operations in 2020 and 2021, it has become a distant memory from a financial perspective. As for its fourth-quarter results, Booking’s revenue was 35% higher (net of currency effects) than in the same quarter of 2019, and its earnings per share were just 6% down from three years ago.
With its current net income margin at 18%, its P/E ratio could fall from 31 to 21 if it returns to its pre-pandemic margins of closer to 27%.
BKNG Profit Margin data from YCharts
That’s a much tastier valuation and doesn’t take into account the fact that management expects gross bookings to grow in the low teens in 2023, which could further lower this reasonable price.
Better yet, Booking’s FCF generation has historically been even more resilient than its earnings, allowing for significant share buybacks over the past five years. Though its share count is already down about 22% during that time, management still has a massive $24 billion left over for its share buyback program, which it plans to deploy over the next four years.
This authorization represents more than a quarter of the company’s total market capitalization and would further fuel Booking’s EPS growth in the coming years.
While the market appears concerned about a broader slowdown in consumer spending, an early look at the company’s January 2023 bookings was encouraging. Compared to January 2019, nights booked for the first month of 2023 increased by a whopping 60% – so if people are reining in their spending, it’s not yet impacting Booking’s results.
It’s apparently hidden inside AirbnbShady (as far as popular stocks go), but investors would do well not to ignore Booking’s immense profitability and global reach. Booking is trading at about 21 times next year’s earnings and is committed to buying back as much of its stock as possible. Booking and its $12 billion cash treasury is a tremendous Nasdaq 100 investment that can be bought now and held forever — even after its rise to the Nasdaq 100 begins in 2023.
