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Why Cloudflare Stock Slumped Nearly 15% This Week

By Nicholas Rossolillo – Oct 1, 2021 at 11:52AM

Key Points

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It could be interest rates, political turmoil, or just a breather from yet another fantastic year for this high-flying stock.

What happened

Shares of edge network software company Cloudflare (NET -1.58%) are down nearly 14% this week. There wasn't any bad news. The slide is likely just an overdue cooling-off. Shares are up nearly 180% over the last trailing 12-month period.  

But scapegoats for the decline in the final days of September abound anyway. The 10-year treasury interest rate rose to over 1.5% this week (higher interest rates lowers the value of future earnings, which tends to hit high-growth names like Cloudflare) and ongoing political turmoil in Washington D.C. and a possible default on government debt, if Congress doesn't act, were the likely catalysts for Cloudflare hitting the skids.  

Someone pictured off screen using a computer. An illustrated lock is shown in the foreground.

Image source: Getty Images.

So what

As for company-specific news, Cloudflare actually had a busy week. It announced two new products: Advanced Email Security Suite that gives businesses more control over security and anti-tampering features; and R2 Storage, which gives developers a fresh option for storing data other than at cloud computing giant Amazon (AMZN -1.40%) Web Services (which, incidentally, is the service Cloudflare CEO Matthew Prince called out as the high-fee sector leader to disrupt when R2 Storage was announced).

Now what

Cloudflare's expanding ecosystem of security and developer products at the network edge has been riding impressive momentum. It's continued to grow at a more than 50% clip this year, even as other tech firms have slowed in their growth trajectory following booming sales in 2020. Its extensive services put it into increasing competition with the biggest cloud service providers, but that hasn't slowed Cloudflare down any.  

Even factoring for the recent pullback, Cloudflare stock trades for a whopping 65 times trailing 12-month sales. After its epic run, expect further volatility ahead, but Cloudflare nonetheless has a bright future.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Nicholas Rossolillo and his clients own shares of Cloudflare, Inc. The Motley Fool owns shares of and recommends Amazon and Cloudflare, Inc. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

Cloudflare Stock Quote
Cloudflare
NET
$48.42 (-1.58%) $0.78
Amazon.com Stock Quote
Amazon.com
AMZN
$89.09 (-1.40%) $-1.26

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

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