- April’s tech stock sell-off pushed Cloudflare (NET) stock back below $100 per share.
- Current market conditions may continue to challenge its performance in the short-term.
- But the long-term is a different story—if you’re patient enough to ride out the near-term, it’s worth a closer look.
The drop off in the price of Cloudflare (NYSE:NET) shares in the past month is not surprising. The March relief rally, that helped growth stocks make a short-lived recovery, faded, as the external uncertainties that have affected the market since late last year came back into focus. That’s why NET stock has made a trip back below $100 per share.
This web infrastructure company’s upcoming earnings report may be something that gives it a boost. Along with this, based on how the markets are reacting to the Federal Reserve’s latest interest rate increase. Having said that, I wouldn’t buy the stock as a short-term bet that growth/tech has bottomed out.
Instead, a better rationale for buying it is as a long-term bet on its continued above-average growth. That’s the best way to approach it, if you choose to do so today, after its latest pullback in price.
Focus on the Business, Not the Market
Right now, it’s unclear whether the stock market has fully adjusted to a rising interest rate environment. One month, we hear “rate hikes are priced in.” The next month we hear the opposite.
That may leave you concerned as to whether now’s the time to buy NET stock. After all, in the near-term, this factor is going to continue playing a large role in its performance. On the other hand, there may be a risk in being overly cautious. It’s possible that the market sell-off, far from getting worse, is on the verge of getting better.
You should keep this in mind, if you are waiting on the sidelines for lower prices. Although it’s yet to re-hit its 52-week low (around $65 per share), it’s not for certain that it’s likely to make a full trip there. Skipping out of it now, you may miss out buying it ahead of its likely comeback.
Put simply, focus on the company’s underlying performance to make your decision. Don’t base it on your view of the market’s direction in the near-term. Why? In terms of its operating performance, while the stock has moved nearly 30% in the past month, the story really hasn’t changed.
Still Firing on All Cylinders
At the risk of sounding repetitive, my take on Cloudflare’s underlying business remains the same. Things are still firing on all cylinders. Demand for both its content delivery network (CDN) and cybersecurity solutions remains strong.
Specifically, when it comes to its cyber business, it continues to demonstrate that it’s a high-quality provider of such services. The latest example? Just last week, it thwarted one of the largest distributed denial-of-service (DDoS) attacks ever recorded. Granted, this isn’t something that is going to directly move the needle for NET stock.
Still, success stories like this could go a long way in helping the company achieve its goal of expanding its large customer count. The company is also boosting the appeal of its platform, by expanding its capabilities via acquisitions. Last month, it closed on its deal to buy anti-phishing software provider Area 1 Security. With $1.8 billion in cash and short-term investments on hand, it has plenty of cash to pursue other such bolt-on acquisitions.
In short, there’s a strong chance Cloudflare keeps delivering operating results in line with expectations. This will help limit further near-term declines. It will also help it start making a big recovery, once growth stocks come back into favor.
The growth potential with its current offerings alone makes it an appealing situation, but there’s something else that could keep this company in high-growth mode for years to come. Even after its CDN and cybersecurity businesses mature.
That would be Cloudflare’s move into new markets that complement its existing segments. For now, this mainly consists of its entry into the cloud storage space. Down the road, management may decide to pursue expansion into other areas.
Currently earning a “B” rating in my Portfolio Grader, I’ll reiterate that market conditions could continue to affect its performance in the short-term. Nevertheless, instead of trying to time when to finally lock down a position, it may be best to buy NET stock now, and simply wait for today’s storms to pass.
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.