What happened
Shares of edge network software specialist Cloudflare (NET 4.16%) 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.
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.
