NET Stock is under pressure but Cloudflare is not at risk
Wall Street investors have a never-ending stream of headlines to worry about these days. We already had macro concerns from the Federal Reserve. And now a more serious topic regarding a potential war between Russia and Ukraine has emerged. The geopolitical crisis is worsening and fear is at war. However, there’s one constant that probably won’t change, and that’s our need for technology — that’s where Cloudy (NYSE:REPORT) stock comes into play.
Pandemic lockdowns served as a global wake-up call that accelerated the digitalization trend. The NET stock has benefited from this catalyst as it offers just about everything we will need going forward. But lately, NET hasn’t reaped the benefits of the pandemic. In fact, NET stock is down 25% year-to-date.
Ultimately, regardless of near-term threats, the world will need more of what Cloudflare offers. It may temporarily stagnate, but the proof is in the financial measures. Cloudflare has grown revenue by 55% per year over the past five years. That’s about all I need to be optimistic about its future success.
Still not convinced? Let’s take a closer look at whether this recent drop is a potential buying opportunity for Cloudflare stock.
The NET Stock slide will end
Given that the company is healthy, my guess is that the NET stock punishment will end. Incredibly, it has already lost up to 65% of its value from its November highs. After struggling for more than two months, NET has finally hit rock bottom. He even pulled out a 60% rally, but that too ended. Overall, the stock is still 10% above its 2020 pandemic breakout. The rally from there has been stunning, but therein lies the source of its current problems.
The rise came too quickly and far too much. As a result, investor expectations have reached high levels. When they are waiting for the moon, it is easy to disappoint them, so they make a fit of it. Eventually this crisis will end and smarter investors will pick up the pieces. These new buyers will be stronger and scare less easily.
For now, I have to respect the trend started last November. Therefore, during rallies like the most recent, investors should look to earn profits faster than normal. Also use fallback pops to repair broken transactions, just in case they fade away.
Cloudflare and the ARK effect
It is now fashionable to sell shares of Cathy Wood. In 2020, the investment company ARK under the leadership of Wood has become very popular. NET corresponds to the parameters that would interest him. Over the past few months, Wall Street has punished anything that looks like a “Cathy” stock. The perfect example is Teladoc (NYSE:TDOC), which recorded a good quarter yesterday. Traders sold it down 5% on the stock, even though the company beat all expectations and increased sales by 45%.
Current investor behavior doesn’t make much sense, but I should give them some leeway. I like the adage not to fight the gang, and it applies here perfectly. Eventually, smart people will realize that Cloudflare has its finger on almost every current trend. It covers e-commerce, fintech, gaming, SaaS and more. From enabling website operation to delivering and securing content, it’s all there. Every hot trending buzzword is on her website.
There are signs of stabilization
Fortunately, the NET stock chart is showing signs of improvement. But before going there, I must remind you of the general concern of the markets. If the indices collapse on a war title, nothing will hold on its own. NET does not trade in a vacuum, so it will also fall below support.
Speaking of which, there are buyers lurking below $82 per share. This is where they rebounded strong on January 28 to rally 60%. Moreover, it has also been a high volume area since the beginning of last year. Investors are creatures of habit, so they like to rinse and repeat. So when a stock falls into past benchmark levels, it finds willing buyers. In NET’s case, it did so recently and over a six-month period before last June.
Fear is a powerful motivator, so I have to respect its effect on the psyche of investors. As long as the CBOE Volatility Index (INDEXCBOE:VIX) is so high, I guess anything can happen. So I would suggest taking only partial positions for new Cloudflare stock investors. For those that are already long, I would caution against adding more with all those lingering extrinsic issues.
At the date of publication, Nicolas Chahine had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
Nicolas Chahine is the Managing Director of SellSpreads.com.