Cloudera (NYSE:CLDR) stock goes into free falls from time to time in spite of a decent story. In the past those brave enough to catch the falling knives received good rewards for their efforts. Profit opportunities come from taking risks but not willy-nilly. The premise for CLDR stock is solid in this post-pandemic hyper-speed digitization trend.
Companies everywhere are in a mad rush to get their systems online. All those who were dragging their feet in adopting technology are now in a panic to catch up. The early adopters who were already on board took the next step forward. As a result, businesses are generating massive amounts of information and they need Cloudera’s services.
The new way of doing business is through subscription revenue and this team is already there. This is not a new company trying to establish itself. They have been at it for 14 years already. Management more than doubled their revenues in four years. They are still not profitable but the net income is now 2.5 times healthier. As long as growth is continuing, profitability will come later. Making progress is the important bit and they are going in the right direction. The current environment is more conducive to them achieving that next.
CLDR Stock Is Battling Formidable Foes
Their competition is fierce but they are up to the task. They’ve been battling giants like Oracle (NYSE:ORCL) and Microsoft (NASDAQ:MSFT) for years. Now there is a slew of new entrants who are small and nimble like Palantir (NYSE:PLTR). Given what we said earlier about the digitization panic, there is room for most to prosper. There will be a few losers but this one is not likely one. I bet that in the next 18 months they will be on even better footing.
I wrote about an opportunity to buy CLDR stock back in 2019. Although I didn’t catch the very bottom, patient investors got 90% upside by December of last year. Unfortunately, three months later it had already tumbled 40%. It is still trying to base, so it is not yet entirely out of the woods.
CLDR looks like it has made a double-bottom to set a floor for this correction. But it will also need the help of the general markets. The indices are at or near all-time highs so they are vulnerable. It won’t take much to cause a short panic system-wide selling. This could cause this stock to lose its recent support. In that case, CLDR could retest the October lows.
The bottom line is that investors will need patience and moderation to be successful with it. This means having courage to buy it on dips but taking partial positions. The new mantra of investing these days is somewhat flaky. There are more traders than investors controlling the short-term action. While this doesn’t change the long-term prospects of companies, it creates short-term challenges.
The Chart Shows Progress
Technically, CLDR stock chart is making progress out of the 2019 correction. From that bottom it climbed 150% but then the pandemic crash of 2020 took it back down to base. Luckily, the buyers stepped in and ran it up 300% before that rally ended in February. Along the way, the dips made higher-lows, so in spite of its woes, it is maintaining a constructive trend.
CLDR consolidated for the last three months. Then last week the bulls went into launch mode and spiked it 20% on the earnings event. While I am happy for those who own shares, the action is not ideal. Now they have to deal with a massive open gap below and that’s a big weakness until it fills. Not every gap has to close but this one is large enough that it likely will.
For that reason, investors should probably refrain from chasing CLDR stock into $17 blindly. It is tempting to chase because of a small open gap there. One could say that it is stuck between two tempting magnets, but the lower one is much bigger. FOMO is a powerful motivators and it will take great restraints to wait for a better entry point. I am confident that in the next few months, I will have the opportunity to get long it lower.
CLDR Stock and the Market
Remember that stocks don’t trade in a vacuum. They have to move within the market’s wake. There are reasons to expect a correction in the indices from all-time highs. Especially that inflation is starting to show itself in the economic reports. We all know that things are expensive now but the data is starting to concur. We will have many of those reports this week and they could cause selling. The Fed may need to speed up its tapering date sooner than later. Stocks will suffer a setback from that event when it happens.
Wall Street endured the toughest tests last year. Those were extremes and once-in-a-lifetime situations. But it has also enjoyed the most tailwinds ever in history. And those too won’t come back for a while. The government threw all its chips in one pot and left no reserves for the next black swan. Stocks may suffer from a sugar high effect. There will be a let-down sooner than later.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.