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Why Cloudflare Stock Soared This Week

By Daniel Sparks – Oct 15, 2021 at 6:53PM

Key Points

  • Shares of the edge network software specialist have more than doubled in 2021.
  • Its second-quarter revenue grew 53% year over year.
  • With its Q3 earnings report around the corner, can the company live up to the market's high expectations?

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The growth stock continued its bullish run.

What happened

Shares of edge network software specialist Cloudflare (NET) skyrocketed 20% in trading this week, according to data from S&P Global Market Intelligence.

Those gains, which extended a bullish run for the company this year, came amid an upbeat week for many growth stocks.

A chart showing a stock price rising.

Image source: Getty Images.

So what

Cloudflare shares have risen 121% year to date and more than 60% in the last three months alone. In October, the stock's surge has been remarkable -- up 46% since the beginning of the month.

This week's gains likely reflect high demand for the stock ahead of Cloudflare's third-quarter earnings report, which is due after the market close on Nov. 4. The company's revenue growth has been accelerating for two quarters in a row, and based on the company's rapidly rising stock price, expectations are high going into the Q3 report.

Now what

While it's possible that Cloudflare will post results that are beyond the market's expectations, investors should be cautious. Even for a growth stock, it has become pricey. Shares now trade at 95 times trailing-12-month sales -- a particularly high valuation for a company that isn't even profitable yet. If Cloudflare's growth isn't sufficiently impressive, its shares could get pummeled.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Cloudflare, Inc. The Motley Fool has a disclosure policy.

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