Please ensure Javascript is enabled for purposes of website accessibility

Why Cloudflare Stock Climbed 23.7% in June

By Keith Noonan – Jul 2, 2020 at 9:54AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The cybersecurity specialist's valuation has more than doubled in 2020.

What happened

Shares of Cloudflare (NET 6.79%) jumped 23.7% in June, according to data from S&P Global Market Intelligence. The cybersecurity stock saw big gains near the middle of the month following positive coverage from an analyst.

^SPX Chart

^SPX data by YCharts

Needham analyst Alex Henderson published a note on June 17 maintaining his "buy" rating on Cloudflare and hiking his one-year price target on the stock from $32 to $38 per share. Henderson's price target suggested roughly 18% upside on the stock at the time of the note's publication, and the coverage helped the company's valuation hit a new lifetime high. 

A digital lock icon.

Image source: Getty Images.

So what

Cloudflare provides edge-computing services and internet infrastructure that helps protect websites from hacking attacks, and its stock has posted stellar performance since the company went public last September. Shares are up more than 140% from the company's $15 IPO price, with gains being driven by strong revenue growth and a promising outlook for the company's cybersecurity services.

Henderson's bullish note on the stock in June cited growing demand for 5G edge-computing services and businesses increasingly shifting operations online as positive catalysts Cloudflare. The company is a leading provider of essential internet security services, and it's positioned to benefit from the long-term growth of internet communications and digital commerce.

Now what

Cloudflare stock has continued to gain ground early in July's trading, with shares up roughly 3% in the month so far.

NET Chart

NET data by YCharts

Cloudflare is now valued at roughly 28.5 times this year's expected sales. Its valuation might look lofty at first blush, but the business is posting impressive growth and has a long runway for expansion. I purchased shares in June and think the tech company could prove to be a big winner for investors who are willing to embrace potential volatility in order to capitalize on growing demand for cybersecurity services.

Cloudflare's sales have grown at a 50% compound annual growth rate from 2016 through 2019, and the company expects revenue will grow roughly 36.5% this year despite significant near-term headwinds stemming from the coronavirus pandemic. The company's current valuation could look very cheap five years down the line.

Keith Noonan owns shares of Cloudflare, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cloudflare, Inc. Stock Quote
Cloudflare, Inc.
$59.58 (6.79%) $3.79

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.