Markets don’t just react to events. They often overreact. That’s why when a short-term problem flares up and goes away, the market tends to react sharply, then revert back to whatever it was doing before.
Last week saw the largest IT outage in history. A security software update caused a number of systems to slow down, crash, or otherwise stop responding altogether. However, the world was largely able to move on and get its work done.
However, the cybersecurity stock involved, CrowdStrike (CRWD), took an 11% drop on the news. This looks like a classic example of a short-term problem that’s easily solved. That means the drop in shares could be a buying event.
Even with its recent drop, CrowdStrike has more than doubled in the past year. Revenues are up by 33%, and are unlikely to take a hit from this latest event. Earnings have fared even better, soaring 8,600%.
Action to take: CrowdStrike shares will likely recover in the weeks ahead, as systems get back to normal. That could mean a short-term, low double-digit return for today’s buyers of shares.
For traders, the November $330 calls, last trading for about $27.00, could see high double-digit returns on a bounce higher in shares over the coming months.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.