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Cloudflare Inc (NYSE: NET) Stock a Buy: Why it Can Soar Higher on Secular Growth Trends

Posted on Thursday, July 16th, 2020 by Sean Sechler

Cloudflare Inc (NYSE:NET) Stock a Buy: Why it Can Soar Higher on Secular Growth Trends

Whether or not you think the rally in tech stocks can continue, you can’t deny the fact that secular growth is occurring in the cloud computing space. There are plenty of new cloud services companies emerging that have a lot to offer investors in terms of growth and innovation. Even if technology stocks lose their steam, buying a company that is set to benefit from secular growth trends will work out for your portfolio in the long term more often than not.

Cybersecurity services are in very high demand as major companies move their businesses into the cloud. This is one of the big reasons why Cloudflare Inc (NYSE: NET) stock is a great buy. The company debuted in 2019 with an IPO price of $15 dollars and its stock has risen over 140% since then. There’s a lot to like about this company’s business model and the stock could absolutely soar even higher on the growing cloud computing trends regardless of what the other tech stocks are doing. Here are some great reasons to consider adding shares of Cloudflare stock.

Cloudflare Stock Has an Edge

One of the interesting things about Cloudflare is that it offers edge-computing services. In basic terms, edge-computing helps to bring computing closer to the source of the data. Instead of relying on a central location that can be thousands of miles away, companies can use edge-computing to minimize the need for long-distance communications between client and server. The result is better performance on applications and websites and cost savings for businesses since they are able to process data locally. Since bandwidth and cloud resources are limited and cost money, edge-computing can help to dramatically reduce costs for companies.

Cloudflare’s mission is simple: to help build a better internet. Along with edge-computing services, this company offers an internet infrastructure that can help to prevent websites from getting hacked. Social distancing is great news for cloud security companies since remote workers need additional protection from hackers and other network attacks. It’s also safe to say that edge-computing services will be in higher demand with the rollout of 5G, which is yet another reason why this company should be able to capitalize on positive market trends going forward.

Cloudflare - Nice Revenue Growth and Strong Gross Margins

You should also consider investing in Cloudfare thanks to its revenue growth and gross margins. The company saw year-over-year revenues surge by 48% in Q1 and it added roughly 250,000 new customers in the quarter. This is proof that the secular growth story and remote work narrative is benefitting the company. Q1 sales also grew by 44% year-over-year in the United States and 58% in Europe, which shows the worldwide demand for the company’s services is increasing. This positive sales trend should continue as Cloudflare provides free trials to potential customers. The company is even offering Cloudflare for Teams at no cost throughout the current COVID-19 crisis which allows employees to safely access internal applications without a VPN.

When you are looking at a 77% Q1 gross margin, you have to be excited about what this company’s earnings growth will look like in a few years. This is especially important to note for a growth stock like Cloudflare since higher gross margins allow a company to retain more capital on each dollar of sales. It is a business that is fully focused on maximizing its growth and has access to the money it needs to expand. Cloudflare has a decent balance sheet and also should be able to raise additional money via convertible notes that will allow it to continue its journey towards becoming the leader in edge-computing and cloud network security.

Strong Prospects

It’s hard to deny the potential for a company like Cloudflare. Since it offers a cloud-based network that assists businesses with improved security, better application performance, and cost savings from its edge computing, it appears ready to capitalize on secular growth trends. The stock has pulled back this week and offers an attractive entry point at this time. Should the company beat analyst expectations on its Q2 earnings report, don’t be surprised to see this stock-taking off to new 52-week highs.

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Cloudflare (NET)1.4$39.47+1.6%N/A-60.72Buy$37.53
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10 Dividend Aristocrat Stocks to Buy Now

The stock market is having its worst week since the financial crisis. For some investors, a flight to safety has them getting out of the market. But other investors are taking a flight to quality. And when it comes to quality in equities, these are the moments when dividend stocks shine.

Already JPMorgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) are projecting that the coronavirus may wipe out corporate earnings growth for 2020. If investors can’t count on their equities to provide capital gains, they look to dividends to boost their total return.

But like any investment, not all dividend stocks are alike. Some of the best dividend stocks are the dividend aristocrats. By definition, for a company to become a dividend aristocrat, they must have at least 25 consecutive years of dividend growth (not just issued a dividend). These companies have a proven track record of weathering market turbulence and delivering solid performance. And, right now, there are only 64 of these companies. In this presentation, we’ll give you 10 dividend aristocrat stocks you can invest in right now.

View the "10 Dividend Aristocrat Stocks to Buy Now".

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