Cloudflare Stock Is Down, But Strong Performance Points to a Buying Opportunity

Cloudflare (NYSE:NET) has been on a roll through the pandemic and beyond. The California-based company is a content delivery network (CDN) provider. It operates a global network of data centers that optimizes the performance of the websites we all rely on. Cloudflare optimizes these websites and web-based services, making them faster, more responsive, and more secure. The pandemic gave Cloudflare’s business a big boost and NET stock responded with an impressive performance over the past two years. 

Close up of Cloudflare logo at the Company's headquarters

Source: Sundry Photography / Shutterstock.com

However, after closing at an all-time high of $217.25 on Nov. 18, NET stock has been in a slump. Now trading below $160, shares are down about 30% from that record close. With life beginning to show signs of normalcy compared to the days of pandemic lockdowns, is this a correction and perhaps the end of the growth run for NET stock? Or, are Cloudflare shares feeling the general malaise that’s hit the stock markets and impacted many tech stocks? 

Another Solid Quarter to Kick off November

Let’s look back to the start of November. NET stock had been on a big run through October. Then on Nov. 4, the company reported its third-quarter earnings. Beating Wall Street estimates on both revenue and earnings, Cloudflare also showed that it was continuing to rack up new customer signups. Even though workers were heading back to the office and stores were reopened, Cloudflare signed up an additional 170 large customers in the quarter. 

In other words, the pandemic and resulting scramble to improve internet-based services was a undeniable gift to Cloudflare, but the company’s growth is not tied to the pandemic.

And if that’s not enough of a case for NET stock, don’t forget that Cloudflare also has a business protecting connected devices from denial-of-service (DDoS) attacks, which is another high-growth area. That’s why this company was featured on my list of Internet of Things (IoT) stocks.

This is a Company Operating in High-Growth Sectors

The shift to online was happening before the pandemic, but the arrival of Covid-19 and the subsequent lockdowns greatly accelerated the trend. Online shopping, online gaming, remote work, remote learning, video streaming — they all got a boost. Each benefits from a CDN, which is why Cloudflare was signing up customers at a record pace. And each of these trends continues strong, even now that we’re returning to a sense of normalcy. For many internet-based activities, there will be no return to pre-pandemic levels. The shift is permanent.

That’s been borne out by Cloudflare’s business. As shown in its third quarter, the company keeps signing new clients. The ongoing shift online means that Cloudflare’s revenue has plenty of room for growth. And NET stock has plenty of room for growth, as well.

Bottom Line on NET Stock

Despite its recent slump, I am still a firm believer in the long-term growth potential for NET stock. Cloudflare continues to deliver earnings results that show big wins on the revenue and customer acquisition fronts. The company may not be delivering profits to investors at this point, but that’s largely because its plowing money back into its business. The payoff will be coming. In the meantime, with a return of 114% so far in 2021 — even after a two week slump — NET stock is proving it is a growth machine. 

This Portfolio Grader “B” rated stock is not free from risk, especially in the short term, as we’ve seen with NET’s 30% slide since mid-November. 

However, just look at the performance of shares up until their Nov. 19 all-time high close. They have two-year growth of well over 1,000%, 2020 growth of 355%, and 2021 gains standing at over 190%.

Cloudflare is operating in an area that is only going to see continued demand for its services. Companies are continuing to ramp up their web presence. That means a bright future for Cloudflare. I think that investors who have NET stock in their portfolios will be rewarded.

The current slide in NET may be frightening off some investors. A 30% loss over the course of two weeks will do that. However, for those who have been following the Cloudflare story since the company first went public in 2019, the current dip seems more like an opportunity than a warning. 

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.

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