What Is Driving Cloudflare’s Stock Price and Should I Buy?

The web security leader has been flying so far in October, but is there a case for further growth from Cloudflare, or has it hit its top?

Oct. 19, 2021

Shares in the web infrastructure and website security company soared once more on Monday after it announced strategic partnerships with Microsoft, Yandex, and other search engines.

Although the move to help businesses improve search results is a big one, it’s just the tip of the iceberg in relation to Cloudflare’s (NYSE: NET) recent growth.

Is it time to buy Cloudflare stock?

Well, to quote a random Twitter user:

“If a meteor hit the earth and wiped out all life $NET would be up 3% the next day”.

And it’s hard not to believe them. Cloudflare is up 42% in the last month — compared to the S&P 500’s 7% — and is up 142% year-to-date. But why? The Microsoft deal was only announced yesterday?

Well, first of all, there have been a LOT of cyber attacks in 2021, if you haven’t noticed. Gas pipelines, data centers, healthcare systems, and many more institutions have been among the thousands of victims of attacks, and investors believe that companies like Cloudflare are the answer. 

After all: more cyberattacks = more business.

Of course, recent gains have aligned with the wider market bullish activity that has taken place among growth stocks, so it’s also a case of being in the right place at the right time. 

And finally, investors are very excited about the company’s Q3 earnings report, due on November 4. Revenue growth accelerated in the last two quarters, so expectations are high going into the Q3 report. 

Cloudflare is a great company, no doubt, but investors should tread carefully. It’s got a spicey valuation of $56 billion, trading at roughly 100 times trailing-12-month sales — all without profit. If its Q3 results aren’t jaw-dropping, it could be an ugly result for its share price.