NET Stock has oversized sales multiple, but it’s a buy on the next drop

Everyone seems to be beating the table for Cloudflare (NYSE:REPORT) right now, even as the NET valuation of stocks is about 60 times expected earnings.

Source: Various photographs / Shutterstock.com

This cloud network and security company lost $ 35 million, or 12 cents a share, on revenue from $ 152.4 million during the second quarter of 2021. This revenue increased 53% year-over-year (YOY). Now analysts expect 2021 revenue to be $ 631 million, 46% ahead of total 2020 sales.

Cloudflare went public on August 26 at around $ 123. That’s a market capitalization of around $ 39 billion. According to In search of the alpha, it has a forward selling price (P / S) ratio of 60.92 times today. Yet people who know their stuff always tell you to buy that name. Why is that?

Here’s what you should do with NET stock in the future.

NET stock: what Cloudflare does

Cloudflare was based in 2009 with the aim of tracking spam. Its name comes from the founders’ initial goal of forming a “firewall in the cloud”. Now the company claims its current Cloudflare One is a “Network as a service” which ensures both speed and safety.

As the need for security has grown, so has Cloudflare’s revenue. In 2019, revenue was $ 287 million. In 2020, they stood at $ 431 million. However, losses have also grown, albeit at a slower pace, from $ 106 million in 2019 to $ 119 million in 2020. Basically, fast-growing tech companies like this invest before growth, eliminating losses as they mature.

What analysts love about NET stock is its continuous innovation. For example, the company Pangea Project is designed to provide faster internet access in underserved areas. Cloudflare is also moving its data centers towards the use 100% renewable energy. Finally, the company is moving towards FedRAMP authorization thus, allowing it to be integrated into US government networks.

But that’s not all. Cloudflare’s network also becomes more secure as it grows. In early summer, the company mitigated a denial of service attack (DDoS) which sent 17.2 million requests per second. CEO Matthew Prince called him “Just another day at the office.”

However, when Cloudflare’s network goes down (as it did briefly last July due to a internal bug), it can destroy thousands of major sites. This high-profile 2020 blackout lasted around 25 minutes.

Cloudflare has become essential

As Cloudflare becomes essential for its customers, it also depends on clouds to function. To this end, CEO Matthew Prince recently criticized that of Amazon (NASDAQ:AMZN) cloud bandwidth pricing. who quickly became a story because the company serves many AWS customers – and because it has provided proof of charges.

That is why InvestorPlace’s Louis Navillier continues to beat the table for Cloudflare, even at his current price.

Ransomware events like the Colonial pipeline attack even act as advertisements for that company’s services. Since that May 7 cyberattack, NET shares have risen 72%. This is against a gain of 6% on the market at large.

I myself have written positively about Cloudflare, noting that cutting edge technology is where you make a lot of money. Of the 12 analysts following Cloudflare followed by Tips, nine now call it a purchase.

The result on the NET stock

Rather than fighting one-to-one security battles, Cloudflare secures networks by default. This makes it essential for any large scale business.

This also makes it essential for any large-scale technology portfolio. The ARK Innovation Fund (NYSEARCA:ARKK) currently 1.06% of its assets in NET stock. That said, the fund is actively traded and has also been sell stocks in recent months during its preparation.

Because NET stock is so expensive, it go down. February and May both saw notable drops in the Cloudflare price. These are the times to charge. When tech stocks are seen as overvalued, they are truly undervalued. And despite your fear of missing out, or FOMO, those times will return.

When they do, buy NET stocks with both hands.

As of the publication date, Dana Blankenhorn held long positions on AMZN. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

Dana blankenhornhas been a financial journalist since 1978. His latest book isThe Big Bang of Technology: Yesterday, Today and Tomorrow with Moore’s Law, technology essays available on the Amazon Kindle store. Follow him on Twitter at@danablankenhorn.

Ann J. Cox