NET Stock is a Buy as Unnecessary Worries Continue to Ease
After a difficult start to 2022, things are finally calming down for Cloudy (NYSE:REPORT). After making two brief trips below $100 per share, NET stock rebounded to triple-digit prices.
Of course, much of this dip is market driven. After shifting from tech stocks to value plays, investors have calmed down over concerns about rising interest rates and their potential impact on growth plays.
But Cloudflare has seen quite a few positive developments since early February. Its results for the fourth quarter (Q4, ending December 31, 2021) were strong. Additionally, the cloud security and content delivery network (CDN) service provider announced two acquisitions. These two agreements will bolster its existing zero-trust security offering, Cloudflare One.
This news may only lead to a slight rebound from its recent lows. Yet, as the uncertainties that have rocked markets since the end of last year are beginning to ease? Although it can happen slowlystocks will begin to rally.
The latest with NET Stock
If market conditions were different, the recent news we’ve seen with Cloudflare would have a much bigger impact on its stock price performance.
That is, a solid earnings momentum, plus guidance for the current quarter that is above Wall Street estimates, would undoubtedly have produced a sustained upward move for the NET stock. Of course, we don’t have the right to choose the market we get; we play the hand dealt to us, as the saying goes.
They may be calming down, but investors are still nervous as many uncertainties remain. This includes the much-discussed uncertainties around monetary policy shifts, and now geopolitical concerns. While these issues do not directly impact Cloudflare’s operational performance, they do affect the market’s willingness to return to action.
The bad news is that this may keep stocks at or near current price levels (around $119 per share) for some time. I wouldn’t rule out another temporary return to double-digit numbers. The good news, however, is that its long-term prospects remain solid. With that, there’s a good chance it will eventually climb back up to its high water mark, before continuing its move to new highs.
Plenty to support Cloudflare’s assessment ahead of its takeover
I understand why short-term issues may make you hesitant to jump into the NET stock right now. Given the high turnover in tech stocks and the company’s premium valuation, it might seem like the stocks have a lot more downside room from here.
Still, while Cloudflare may be trading with both a high price-to-sales (P/S) ratio and a high price-to-earnings (P/E) ratio, that doesn’t mean another big correction is due. There is more than enough at stake to allow it to maintain its current valuation for the time being.
With its strong year-over-year sales growth in the last quarter (54%) and last year (52%), and its rising forecast, concerns about its slowing growth rate may be overstated. . Demand for its two main offerings (CDN and cybersecurity) remains very strong. Again, as I mentioned above, the company is improving its trustless security platform, thanks to two acquisitions.
First, its announced purchase of Vector, which will add modern Cloud Access Security Broker (CASB) functionality to its Zero Trust product. Secondly, announced just a few days ago, its plan to purchase Zone 1 Security. This startup, whose core product provides anti-phishing protection, will also bolster the capabilities offered by Cloudflare’s cybersecurity unit.
The verdict on NET Stock
Simply put, there’s more than enough in Cloudflare’s corner right now to at least keep it stable. But in addition to the prospect of a rollback, as the worries fade away, keep something else in mind. Other catalysts should send it to new heights in the years to come. Namely, long-term initiatives, like its plans to become “the fourth major public cloud.”
For now, that may sound more like an ambitious goal. Only now starting to offer cloud storage, it has yet to prove itself. Three of the world’s biggest tech companies dominate the space. Each of these competitors generates billions in annual revenue and has market values in the trillions of dollars.
Still, while Cloudflare is small fry compared to these tech titans, don’t rule out its chances. It has already penetrated larger segments of the cloud services space. The company’s pivot to an even larger segment of the market could be just as successful.
Get a “B” grade in my portfolio binderas it holds above $100 per share, it is still a great time to build a position in the NET stock.
As of the date of publication, Louis Navellier had a long position in NET. Louis Navellier has held (neither directly nor indirectly) any other position in the securities mentioned in this article. The InvestorPlace research staff member primarily responsible for this article has not held (directly or indirectly) any position in the securities mentioned in this article.
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