1 Wall Street Analyst Raises Cloudflare's Price Target by 55%: Here's Why They're Right.

Shares of Cloudflare (NET 1.44%) are on their way to $124, according to an analyst at Argus. They argue that Cloudflare has simultaneously improved profitability and revamped its sales team, which should help investors warm to the unprofitable cloud computing company. This new price target represents an upside of about 24% from the current stock price and is 55% higher than the previous price target.

Optionality at every turn

Cloudflare operates a global edge cloud computing network that spans more than 310 cities. The company's two core services revolve around website performance and security. By caching data close to users, websites can greatly reduce latencies and improve the user experience. And by sticking Cloudflare in between users and servers, Cloudflare can absorb and mitigate large bursts of nefarious traffic.

The company has long been layering additional products and services on top of its edge network. This includes a developer platform with serverless computing, data storage, and website hosting, as well as Zero Trust security services.

Cloudflare's sales teams began to struggle last year, partly due to the explosion of the product catalog. Thanks to a revamp, Cloudflare noted that pipeline close rates had greatly improved at the end of 2023. This helped push revenue up 32% in the fourth quarter while cutting its GAAP net loss in half.

A fantastic growth story

Cloudflare stock is certainly expensive, and it will become even more expensive if the Argus analyst is right. With a market capitalization of around $34 billion, the stock trades for more than 20 times management's 2024 revenue guidance.

While this valuation may be tough to swallow, Cloudflare has only begun to scratch the surface of its long-term market opportunity. The company pegs its total addressable market at $146 billion today, and it will grow to $204 billion by 2026. Those figures compare to annual revenue of $1.3 billion in 2023. It may take time for Cloudflare to grow into its valuation, but the Argus analyst isn't wrong to be optimistic about the stock.