NET Stock has a great story that shouldn’t turn into a big tale
Investors in Cloudflare (NYSE:REPORT) stock find life in the middle of it confusing. For the past 12 months, NET stocks have been overlooked for reasons that I guess have to do with investors chasing other sectors.
But everything changed at the start of the summer. As our Louis Navellier emphasizes Rupture of the colonial pipeline and the ransom that followed brought the issue of cybersecurity to the fore for investors. And almost overnight, NET stock began what has become a meteoric rise.
However, the ascent took place in a fairly orderly fashion. It is until October 1. At this point, NET stock became hyperbolic, nearly doubling its price in the six weeks from September 29 to November 18. new catalyst seemed to be the Meta-platforms (NASDAQ:FB) – then Facebook – outage at the beginning of October.
Finally, the company’s last earnings report in November pushed NET stock to the peak it couldn’t hold. The stock is down almost 30% last month. So this leads many to wonder if the sale is over.
I tend to follow the adage of not paying the price for tomorrow today. Of course, sometimes this is impossible to avoid. This is why if you are a current shareholder of NET, I would be sitting tight. In fact, I can take the current share price as a buying opportunity.
The most difficult question arises if you are looking for a new position. For these investors, I would like to make sure that the company’s innovation story does not turn into a tale.
Innovative, but without rush to profit
Investors must have been happy that Cloudflare posted a profit according to GAAP measures in its last quarter. And CEO Matthew Prince reiterated the company’s goal of achieving an operating margin of 20%.
However, Prince has also made it clear that the company is in no rush to make it happen. In fact, Prince said, “As long as we can achieve extraordinary growth, we expect that we will reinvest our profits back into our research and development and our sales and marketing machine. He went on to say, “We expect that we will be hovering just below or above the breakeven point probably for years to come.”
At first glance, this is not a particularly controversial comment. Especially in the context where Cloudflare would continue to develop innovative products to fuel its growth. Nonetheless, I can’t help but watch these words: “As long as we can achieve extraordinary growth …”
And I hope investors will watch them too. So far, so good. In the quarter just ended, Cloudflare’s revenue was 13% higher than in the previous quarter. And the company has shown sequential double-digit growth in three of the past four quarters.
So maybe Prince knows what he’s talking about. However, if that growth slows, Prince may only have himself to blame if investors decide to bail out NET shares.
NET Stock is a safe buy
The risk of buying Cloudflare at its current price is that it could go down further. Of course, the risk of not buying NET stocks is that the stock is near a bottom.
Alex Sirois wrote that Wall Street analysts gave NET stock a $ 212.50 consensus price target. According to MarketBeat data on Cloudflare, the the consensus price target is $ 164.55. That’s a premium of around 20% over the current share price. This seems much more realistic when you consider that the average gain of Dow Jones stocks over the past 10 years is 11.5%.
If you can buy a stock with the firm belief that it can deliver twice the trade average return, you do. If you have this belief in Cloudflare, then the stock would appear to be at a good buy point. But if you have any hesitation, you can wait for bullish confirmation.
As of the publication date, Chris Markoch does not have (directly or indirectly) any position in any of the stocks mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.
Chris Markoch is a freelance financial writer who has covered the market for seven years. He has been writing for InvestorPlace since 2019.