NET Stock: Why now is not the time to buy Cloudflare stock
Source: Igor Golovniov / Shutterstock.com
Cloudy (NYSE:REPORT) the stock is down more than 55% from its previous high in November last year. Nonetheless, investors should still hope for a significant NET rebound in the near future due to its robust revenue growth.
Cloudflare’s 54% revenue growth is certainly impressive. However, it’s important to remember that the company reported an annual loss of $260 million last year. Moreover, its revenue of $656 million does not justify its current market capitalization of $29.5 billion.
Of course, Cloudflare will undoubtedly be a good long-term investment. Cybersecurity will always remain an important segment of the technology industry and, admittedly, the company is very influential. At least 9,422,990 websites use Cloudflare for their security. Additionally, the NET stock found support at $80 and steadily rallied in value.
So why do I recommend against buying the stock? The answer lies in the broader market. NET stocks are inherently overvalued, and these overvalued stocks are unlikely to perform very well if the market deteriorates. In the worst case, a recession would be devastating for stocks such as Cloudflare.
A recession might not happen anytime soon. However, prevention is better than cure in today’s market. In a capitalist economy like the United States, there will always be booms and busts. Thus, you should consider the prospect of a recession when investing.
There is also an additional short-term risk for NET. Major companies, including Cloudflare, will release their first quarter results in a few weeks, significantly affecting the future of the market. Additionally, Cloudflare’s strong revenue growth has generated a lot of expectations for the company, and an unsatisfactory quarter can bring it down even further.
Even if you’re looking to hold the stock for the long term, I wouldn’t recommend investing a significant portion of your portfolio in the stock.
As an investor, your main objective should be to maximize profits with the least amount of risk. In the event of a prolonged bear market or recession, investing in overvalued and risky stocks could earn you a loss several times greater than the current inflation rate.
Therefore, I think investors should prioritize stocks that are doing well in a bear market, over Cloudflare. Like retail. However, if you are still looking to invest in NET, I recommend investing a limited amount until the market stabilizes.
At the date of publication, Omor Ibne Ehsan did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. the the opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.