NET Stock is a long-term growth story caught in a short-term market

  • Cloudy (REPORT) is showing strong year-over-year revenue growth.
  • The market believes that growth is already factored into its price.
  • NET stock presents an opportunity for patient long-term investors.

Source: various photographs / Shutterstock

Cloudy (NYSE:REPORT) illustrates the inherent problems with growth stocks in today’s market. The 52-week range for NET shares is $64.84 to $221.64. This puts the stock price (which is around $98 at the time of this writing) at the lower end of the range. However, it is only up about 36% from its current level.

It is not a very compelling story for short-term traders. However, Cloudflare is growing its portfolio and revenue in the region of online storage. And with this sector set to show significant growth over the next few years, a long position in NET stocks may make sense for long-term growth investors.

Revenue continues to grow

In the fourth quarter of 2021, Cloudflare recorded revenue of $193.6 million. This was 12% better than the previous quarter. And this quarter was 13% higher than the previous quarter. And for all of 2021, Cloudflare’s revenue was 53% higher than the previous year’s total.

The question some analysts are asking is whether this growth can continue. On this side, things are less certain. Cloudflare announces its earnings on May 5 and the whispered number a Cloudflare posting revenue of $205.77 million.

This is entirely in line with the company’s own forecasts for a turnover of $205 million to $206 million. And that would be 6% growth, half the percentage growth seen in the previous quarter. However, that would be a 49% year-over-year increase.

Analysts predict that Cloudflare will post a 42% gain in revenue for the full year. From a broader perspective, the company’s turnover is expected to grow by an average of 40.3% over the next five years. On the earnings front, the news is even better. Cloudflare’s earnings per share are expected to grow more than 95% annually over the next five years.

It’s a question of evaluation

Growth-oriented investors shouldn’t necessarily be scared off by overvalued stocks. Many of these businesses are not profitable. This makes it difficult to use many traditional metrics, and NET stock does.

There are times when a company can increase its valuation if it grows revenue and profits at an aggressive pace. This is what investors are betting on with a growth stock like NET stock.

And there might be a reason for this optimism. The cloud storage market, which is essential for Cloudflare, is expected to grow to $222 billion by 2027 from $61.1 billion in 2020.

However, the impressive growth projections cited above – especially in the case of revenue – don’t really start to materialize until 2024 and beyond. And as I pointed out in April, the company’s CEO, Matthew Prince, told analysts that the company plans to funnel one a significant portion of its income in research and development. This will delay Cloudflare’s path to profitability.

The saying that value is what investors are willing to pay applies to Cloudflare. And in the current risk environment, particularly with respect to tech stocks, investors seem to have stocks NET in a tight range that doesn’t leave much room for upside.

Go Long or Stay Away NET Stock

Cloudflare stock has significantly exceeded its value in 2021. As a result, some investors are sitting on a loss. One of my InvestorPlace colleagues, Dana Blakenhorn, is among them and I appreciate her frankness.

No investor always succeeds, but like Blakenhorn pointed out, if time is on your side, the NET stock seems like a reasonable bet. But if you are considering a stock for a speculative trade, there are better options to be found.

As of the date of publication, Chris Markoch had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

Chris Markoch is a freelance financial writer who has covered the market for over five years. He has been writing for InvestorPlace since 2019.

Ann J. Cox