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Cloudflare Stock Just Keeps Rising. Is It Too Late To Invest?

Cloudflare (NYSE:NET) continues to be a summer favorite target of tech investors. After NET stock growth plateaued through the spring, it caught fire again in May. Since the middle of that month, shares in the CDN (content delivery network) and internet security provider have increased in value by 83%. While the pace has increased, the NET growth trajectory has been in place since the company went public in 2019. In the slightly less than two years since then, NET stock has delivered a 565% return.

Close up of Cloudflare logo at the Company's headquarters

Source: Sundry Photography / Shutterstock.com

The question now is whether it’s too late to get onboard.

CDN providers like Cloudflare are a big part of what we experience on the web and with internet-dependent services like online shopping, video streaming, video calls and social media. CDNs operate regional data centers that reduce website response time and provide added security. Demand for CDN service grew rapidly during the pandemic, and it’s on track to keep growing.

Worth $14.4 billion in 2020, the global CDN market is projected to hit $27.9 billion by 2025. That bodes well for Cloudflare, and sets the stage for NET stock to deliver long-term growth.

Q2 Earnings Show Cloudflare’s Momentum Is Continuing

On Aug. 5, Cloudflare reported its second-quarter earnings. After adding a record 140 large customers (those paying over $100,000 annually), it now has 1,088 at this level. At the end of the quarter, Cloudflare had 126,735 paying customers in total. The company also has millions of customers using its free services.

That free tier is important for future growth. As companies outgrow the free offering, there is a high likelihood they will transition to a paid version of a service they are already familiar with rather than to switch to a new vendor.

The results helped keep up the momentum of a growth streak that kicked off in May. 

The company’s CEO couldn’t have sounded any more elated as he summed up Cloudflare’s performance:

“We had our strongest quarter ever as a public company, and our revenue growth continued to accelerate, growing 53% year-over-year. We also added a record number of large customers, signing the equivalent of more than two six-figure customers every single business day in Q2.”

Analysts Feel NET Stock Still Has Room to Grow

NET stock’s performance in 2021 raises questions of momentum sustainability. How long can this growth run continue? Investment analysts are bullish on the stock, although most are predicting the pace of growth is going to slow.

Looking at analyst activity in August, there have been some notable upgrades in the wake of the company’s Q2 earnings. For example, both Argus and Needham & Company already had NET stock rated as a “buy,” but both raised their price targets to $140. Cowen, which has NET rated as “outperform,” upped its price target from $124 to $135. It’s not all positive — Robert W. Baird downgraded the shares from “outperform” to “neutral” — but Cloudflare sentiment remains positive overall. 

Among the 17 analysts polled by the Wall Street Journal, NET has a consensus “Overweight” rating, with an average $124.79 price target.

At this point, NET stock earns a “B” rating in Portfolio Grader.

Bottom Line on NET Stock

In addition to its importance as a CDN, Cloudflare also plays a pivotal roll in the exploding Internet of Things (IoT) market. Billions of unsecured, connected devices are at risk of being used in DDoS attacks to cripple websites and internet services. Outages have impacted some of the world’s biggest tech companies, resulting in increased demand for a solution. Cloudflare is playing a vital role in defending against these attacks.

That makes NET even more attractive. It’s not only going to continue to benefit from the ongoing reliance on CDNs, it’s also an IoT stock. I wouldn’t give great odds that Cloudflare shares are going to be able to maintain the blistering 83% pace they’ve set since since mid-May. However, this is a company that’s a leader in hot industries that are projected to see demand continue to grow. That’s a recipe that’s favorable to long-term growth for NET stock, even if the days of big, fast-paced gains are over for now.   

On the date of publication, Louis Navellier had a long position in NET. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (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.

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Article printed from InvestorPlace Media, https://investorplace.com/2021/08/cloudflare-net-stock-just-keeps-rising-is-it-too-late-to-invest/.

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