Shares of web infrastructure company Cloudflare (NET 1.03%) fell 28% in April, according to data provided by S&P Global Market Intelligence. It was a tough month for stocks in general as the S&P 500 tumbled 8.8%, but high-growth software stocks were especially under pressure. In response to high rates of inflation, the Federal Reserve has indicated it will aggressively hike interest rates this year to try and cool the economy off. Higher rates lower the present value of risk assets like stocks.
As of this writing, Cloudflare is down over 60% from all-time highs last reached in the autumn of 2021 -- although the stock is on an epic 400% run since its initial public offering (IPO) in 2019.
There wasn't any specific financial news coming from Cloudflare to help offset market turbulence. However, the company did complete its acquisition of email security outfit Area 1 Security in early April. And in an ongoing effort to try and make companies' online activity safer, Cloudflare deepened its partnership with leading cybersecurity company CrowdStrike (CRWD 1.24%) in late March.
From its internet content-delivery network to software developer tools, Cloudflare is on a roll in building an ecosystem of next-gen services for businesses large and small. Due to the fact it still operates at a loss (negative $43 million in free cash flow in 2021 on revenue of $656 million), the stock is presently out of favor. However, Cloudflare is intentionally operating in the red and spending heavily on new product development and marketing. The company has been growing revenue north of 50% for the last five years.
For 2022, management provided an initial forecast for revenue to be up at least 41% to $927 million. The company also thinks it will generate an adjusted operating profit, though that isn't the focus as long as Cloudflare is finding growth opportunities in the web infrastructure, security, and cloud computing tools industries.
Of course, even after the beatdown the stock has endured in recent months, Cloudflare is still valued at a steep 31 times expected 2022 sales. The price tag assumes torrid expansion will continue for years to come, so if a volatile stock price isn't up your alley, pass on this one. However, Cloudflare is riding incredible momentum with its tech infrastructure products and operates in massive industries. If you believe this company can successfully navigate a rising interest rate environment while keeping the pedal to the metal, give it a closer look after the sell-off.