NET stock runs on borrowed time
Unlike a lot of hot stocks this year, Cloudflare (NYSE:REPORT) might rightly be considered the real deal. But is NET stock worth buying today?
Let’s look at what’s going on off and on the price chart, then come up with a risk-adjusted determination to avoid getting burned.
The price is what you pay, and the value is what you receive. These are famous words proposed by Warren Buffett to guide investment decisions in stocks.
With a few well-seen and played measures, the proverb went out the window in 2021.
I’m referring to memes stocks. GameStop (NYSE:GME) Where AMC Entertainment (NYSE:AMC). Producers of sundials (NASDAQ:SNDL) Where Koss Corp (NASDAQ:KOSS).
And from the most high-profile and perhaps surprisingly long-lasting memes to the long-now-insane duds – they’re everywhere. But what does this have to do with stock NET, a recent large-cap IPO tech company at the forefront of cybersecurity?
A quick breakdown of the NET stock
Lately, NET stock has made a name for itself.
Cloudflare bulls can brag about metrics. They can demonstrate that he fires on all cylinders. Facts such as NET’s 50% compound annual growth rate (CAGR) over the past 3 years and its nearly 125% net income retention rate support the bullish argument.
But don’t be fooled by the NET stock conversation today. Instead, think about what’s missing the most in action.
For example, looking at yesterday Amazon (NASDAQ:AMZN) and its past corrections compared to the current evaluation detour in Zoom video (NASDAQ:ZM), we see that this time is no different for NET investors.
Right now, the NET stock price chart seems more and more in line with this kind of reality.
A look at Cloudflare’s monthly price chart
Source: Charts by TradingView
Calling a summit is difficult. It has been said that investors are only allowed one of these “I told you so” in their lifetime. Whether this is true or not, technically the indications are that NET stock is gearing up for a larger bear market cycle.
So what do we see that is so disturbing about NET today? A few things are problematic.
First, investor enthusiasm has made its way into NET stock, helping it out of a fairly broad pattern of Bollinger Band expansion over the past six weeks.
Combine that with NET’s climb angle and overbought stochastics, and it’s still accurate to label price action as unsustainable (even without calling an exact top).
Second, as noted above, a painful history lesson that is often overlooked is that even the best stocks, without exception, will correct themselves from time to time.
Additionally, these bearish periods often come after larger rallies that have stretched stocks considerably beyond their last base pattern. In cases like these, the bulls control an unbalanced narrative of how the stock is going to grow to its current multiple without faltering.
Seems familiar? Yeah, that’s today’s NET stock and it’s mostly guilty as accused.
Ultimately, Buffett’s saying about price and value is worth considering here. This is especially true given the historical backdrop of the downfall of big names and more specific positions such as the price-to-sales ratio 107 times higher than NET and a fairly high valuation of $ 66 billion.
As of the publication date, Chris Tyler 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, subject to the publication guidelines of InvestorPlace.com.
Chris Tyler is a former ground-based derivatives market maker on the US and Pacific stock exchanges. For additional market information and related thoughts, follow Chris on Twitter. @Options_CAT and StockTwits.