Cloudflare Inc. (NYSE:NET) has been a standout in the tech sector, known for its robust cloud networking and cybersecurity services. As of today, the stock is trading flat year-to-date at around $80 but significantly down from its February peak of $116. This down move has created concerns among investors about its future trajectory.
Recent developments and financial performance
Cloudflare recently acquired BastionZero, enhancing its Zero Trust security offerings under the Cloudflare One platform. This move underscores Cloudflare’s commitment to strengthening its remote access capabilities.
Financially, Cloudflare reported impressive Q1 results, beating revenue expectations with a 30.5% year-over-year growth, reaching $378.6 million.
Analysts have noted Cloudflare’s resilience in maintaining strong gross margins of around 80%, supported by its efficient global network architecture.
The company projected continued growth with a revenue outlook of $1.648 to $1.652 billion and non-GAAP income from operations of between $160.0 to $164.0 million for FY2024.
Investment firms have varying outlooks on Cloudflare’s valuation and future prospects. On June 25th, analysts at UBS upgraded Cloudflare to Neutral from Sell, with a revised price target of $82, citing improved risk/reward dynamics post recent adjustments.
Conversely, Bank of America recently reiterated an Underperform rating, expressing concerns over premium valuation amidst lingering macroeconomic uncertainties.
Meanwhile, Baird maintains an Outperform rating with a price target of $94, emphasizing Cloudflare’s strong market position and growth potential in cybersecurity and AI-driven services.
Cloudflare’s forward P/E ratio of approximately 128x and forward EV/EBITDA multiple of 87 suggest a premium valuation relative to its peers.
However, several analysts remain optimistic about Cloudflare’s ability to leverage its technological innovations and global network infrastructure to drive future earnings growth and market share expansion.
Now, let’s delve deeper into the technical indicators to discern the possible trajectory of Cloudflare’s stock price moving forward.
Road to $100: Not easy
Cloudflare’s stock generated over tenfold returns between early 2020 and late 2021 following which it experienced a dramatic decline, losing 80% of its value over the next couple of months.
Once this decline ended, the stock largely traded in a $40-$76 range for the next two years.
It seemed that it had broken out of this range in February this year when the company reported better-than-expected Q4 2023 numbers, but that surge was seen as an opportunity by trapped bulls to get out of the stock.
Though the short-term momentum of the stock has turned bullish this month as it has bounced back from $65 levels to $80 levels, its 50-day moving average continues to trade below its 100-day moving average, suggesting bearishness in the medium-term.
Investors who are bullish on the stock must tread with caution as the short-term bullish momentum we are witnessing right now can reverse at any point.
So, one must initiate a bullish position only when the stock’s 50-day moving average crosses over its 100-day moving average.
If the bullish momentum continues, it can take the stock near $98 where it faced resistance earlier this year.
Traders who are bearish on the stock must also exercise some caution due to the short-term bullish momentum. However, they can initiate short positions above $80 with a stop loss at $88.4.
If the stock fails to fill the gap it made after its most recent quarterly results, it can once again fall to $65 levels, where they can book profits.
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