NET Stock: A Safer Bet on $145 for Cloudflare Stock

  • Cloudy (REPORT) is a battleground stock pitting multiple squeezes against secular growth
  • Relative and Schematic Weakness in NET Stock Warns of a Bigger Correction
  • A stock collar protects against bearish bad actors in NET stocks

Source: various photographs / Shutterstock

The economic stress factors here, elsewhere and everywhere have quickly led to a recovery in the market, which is under pressure this week. And Cloudy (NYSE:REPORT) was not immune to the risk asset attack. NET stock is down 6.85% in the last 5 days alone.

A reduction in portfolio risk over the past two sessions linked to growing concerns over the global recession fueled by a Deutsche Bank warning, cash inversions, growing Covid-19 and Russia concerns, as well as a central bank’s more hawkish policy, grab headlines and price reprieve today.

Intraday, the S&P500 and Nasdaq are mostly flat on the session after hitting two-week lows and losses above 2%. Amid the lull, cloud networks and the NET security game are storing around 0.75%. But don’t be fooled by complacency.

With the confirmed broader market rally at risk, there is an increased chance of buyer’s remorse in Cloudflare at current prices. Today, let’s look at the pros and cons of stocks. I will then propose a strategy to better defend against unwanted bearish attacks.

REPORT Cloud Flare, Inc. $111.26

Growth, price compression and investor depression

Investors who are positive on NET stocks are almost uniformly bullish on the company’s two-tiered secular growth story.

Cloudflare stock quickly made a name for itself early in the pandemic. This is due to its Content Delivery Network (CDN). Amid lockdown orders, the business of providing faster online access and protecting websites from hackers has seen demand soar.

Regardless of the future of lockdowns, the need for this type of service will only grow. Attractively, Cloudflare also focuses on cybersecurity.

NET cybersecurity has been instrumental in helping employers keep remote workers safe at their desks, cafes, and various locations while handling business-critical information. And this way of life is not going away either.

With geopolitical tensions rising, the risks posed by larger malicious actors like Russia and North Korea are also increasingly good for NET’s business prospects.

But if price is what you’re paying, Cloudflare bears will be quick to point out that stocks are trading at 50x expected sales for next year.

Additionally, with NET stocks forcing investors to look beyond today’s red ink to locate profits, this is a riskier ask given that future profits are worth less in a rising interest rate environment. Not to mention the added challenge of current risky behavior.

NET stock at risk of additional risk reduction

Corrections can be made at any time. Since Apple (NASDAQ:AAPL) for You’re here (NASDAQ:TSLA), even the largest and most respected companies in the market will sometimes find their stocks unable to fend off enemy bear attacks. NET stock is no exception to this rule.

The chances of a larger bear cycle also increase without the benefit of a healthy investment environment. And today, NET stocks face that risk as the perception and reality of higher interest rates conspire against high-priced growth narratives.

To be fair, Cloudflare’s 65% correction from the November peak is substantial. But it’s also true that NET’s bear cycle is not exceptional among NET’s caliber growth stocks. Like InvestorPlace Ian Bezek cleverly wrote, competitor Rapidly (NYSE:FSLY) should serve as a warning of what could still go wrong.

Of course, the circumstances surrounding FSLY’s 85% drop over the past 18 months are obviously not the same. But it’s true that much of what’s considered downside fact in Fastly right now has tracked FSLY’s share price badly.

A less risky NET stock proposition

Today there is something interesting for bulls and bears in NET stocks.

With risky trade potentially back in play, NET stock weakens against peers Leidos (NYSE:LDOS), Fortinet (NASDAQ:FTNT) and CrowdStrike (NASDAQ:CRWD) and a monthly chart indicator pattern capable of sending stocks towards $60 and the 76% retracement level of NET – Cloudflare looks increasingly risky as a buy.

If optimistic investors see more value in owning NET stocks today rather than maintaining restraint, to avoid a worst case of buyer’s remorse and even take advantage of the opportunity to take advantage of a l lower action, I would recommend an actively managed collar.

Cloudflare stock has yet to clear the monthly flag and the $132.50 area on the price chart before NET stock can begin a broader bull run on the right side of a corrective base. A slightly unorthodox but preferred combination is for the bulls to start their NET investment campaign with the June $125/$145 collar.

As of the date of publication, Chris Tyler does not own (either directly or indirectly) any of the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

The information offered is based on the observations of Christopher Tyler and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related thoughts, follow Chris on Twitter @CAT_Options and StockTwits.

Ann J. Cox