These Red-Hot Companies Still Have Plenty of Room to Run (NET)

This stock is on fire, and it won’t quit

Brian Withers (NET): Cloudflare stock is on a tear. It’s bucked the tech stock malaise and is beating the S&P 500 on a year-to-date basis. But what’s even more impressive is that this market-beating performance is on top of its 345% gains in 2020. But investors haven’t missed the ride, this infrastructure-as-a-service specialist is just getting started.

Let’s start by taking a look at the key metrics for its most recent quarter. Top line growth, large customer expansion, and dollar-based net retention posted impressive gains year-over-year. The sequential quarterly increases are signs that it has momentum coming out of the pandemic. Chief Information Officers have been hesitant to implement new technologies with the scramble to manage connections to its remote workforce, but those fears are starting to wane. The company added a record 8,000-plus paying customers in the quarter, which was an impressive 34% year-over-year gain and a 7% increase over the previous quarter.

Data source: Company earnings release and associated supplemental financial data.

Beyond these stellar results, the company was handed a recent gift in the form of a White House’s Executive Order. On the heels of numerous ransomware attacks, the US government is asking businesses to step up their cybersecurity efforts. Even though many companies already utilize some kind of cybersecurity provider, this should push the late adopters to get on board too. Investors should be excited that Cloudflare is perfectly positioned to welcome these new customers. CEO, Matthew Price said in a recent interview that the executive order “was like reading the Cloudflare product catalog.”

This infrastructure-as-a-service provider is firing on all cylinders and has plenty of runway to grow into its 2024 addressable market of $100 billion. If you are hesitant to pick up shares because of its lofty 59 price-to-sales ratio valuation, a suggestion would be to buy in over time. Look to grab a few shares today to get skin in the game. As you become more familiar with this growth stock as you follow it, you likely gain more confidence. As you build more conviction with time, add more shares. You’ll be happy you did.