I can understand why you may be hesitant to dive into Cloudflare (NYSE:NET) today. Although it’s been moving higher in recent weeks, in line with other large-cap tech names, it may appear that outside factors could delay a NET stock recovery.
Market volatility has caused this to happen twice so far this year. But, while things may stay frustrating in the near-term, that’s not to say you should write off its potential as a great long-term opportunity.
The fast-growing web infrastructure company’s two main offerings continue to benefit from high demand. We may even see greater demand for its cybersecurity solutions, in light of the recent geopolitical chaos. Demand for its content delivery network (CDN) services isn’t going away anytime soon.
That’s not all. Don’t forget the company has plans to both expand its cyber offerings and make a move into another major area of the cloud services space. In short, it has in place exactly what it needs to make a recovery and to hit new highs in the years ahead.
NET Stock and Its Recent Performance
Again, the tech stock recovery has been a big reason behind Cloudflare’s surge since the middle of last month. Along with this, shares have received a boost from the fallout of Russia’s invasion of Ukraine. Fears are on the rise that Russia will retaliate against the West’s economic sanctions via cyber attacks. In turn, investors have jumped back into this and similar plays, ahead of a possible boost in demand for cybersecurity services.
Whether these factors will continue to lift up NET stock remains to be seen. You can argue the Russia-related boost has worn off. The tech sector’s rebound may be fading as well. After weeks of fear, uncertainty and doubt (FUD) cooling down, it could be on the verge of surging again. This is mainly due to heightening concerns about a recession in the U.S.
In short, market conditions could revert back to being out of its favor. That was the main driver of its severe drop from late fall through late winter. Even so, you shouldn’t base your decision to buy on the stock market’s near-term direction. Instead, what should be in focus is Cloudflare’s underlying business performance. This, not external factors largely unrelated to its business, will be what determines its stock price performance over a long timeframe.
In terms of performance, Cloudflare continues to fire on all cylinders. There’s a strong chance it will continue to do so. Especially after its recent bulking up of its cyber offerings. Not to mention, the ramp-up of its newest cloud solutions offering.
Operating Performance Remains Strong
As seen in its most recent quarterly results, Cloudflare is still in high-growth mode. For the December quarter (Q4, 2021), revenue was up 54% from the prior year’s quarter. Not only that, the company is also making headway when it comes to signing on large enterprises as customers. Growth among large enterprise customers (71%) exceeded overall growth.
Unfortunately, the market’s souring on tech outweighed these strong results. In fact, one analyst found a way to turn its large enterprise sales growth numbers into a negative for NET stock. We may see this underappreciation play out again when it next reports in May.
It all depends whether bullishness for tech continues to renew, or if a cycling out of the sector resumes. Yet as long as it continues to deliver strong operating results, the long-term bull case for shares still stands. News from recent months helps to bolster the argument that this winning company will stay a winner in the years ahead.
Like I mentioned early last month, a pair of recent acquisitions will help strengthen the appeal of its zero-trust security platform. Its move into cloud storage, part of its plans to become “the fourth public cloud,” is one with substantial potential. The cloud storage industry is set to be more than $350 billion per year market by 2028.
The Takeaway With NET Stock
If the market’s warming back up to tech cools off again, Cloudflare could again pull back once more. This may be leaving you thinking twice about buying in today. You may be thinking of waiting for further weakness before buying.
But I wouldn’t get too hung up on getting in at the absolute bottom. Instead, you should be focused more on locking down a position, while its recovery is still taking shape. Chock full of the key ingredient (a long growth runway) needed to make a full comeback, NET stock remains a great opportunity.
NET stock earns a “B” rating in my Portfolio Grader.
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. The 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.
