Why Cloudflare fell more than 13% today
Shares of Cloudy (NYSE:NET) fell 13.2% on Thursday, bringing the edge computing company’s market capitalization to half of what it was at an all-time high in November. The stock has now completed a six-month round trip that began last summer – during that time it has doubled in value, and now it’s crashed back to where it started. Cloudflare is however still up 27% over the last 12 months.
Even after getting back to where it was last summer, Cloudflare is still trading at a high price, even for a tech outfit. Its current valuation is 48 times expected 2021 sales. (It will release its fourth quarter report on Feb. 10, finalizing that revenue.) bid for this new security, networking and internet development company generation.
When it comes to the drop of the past few months, Cloudflare is beaten along with other high-growth but highly valued stocks, as the market expects interest rates to rise this year from their current lows. As a reminder, higher interest rates decrease the value of future cash flows, which decreases the present value of a stock. Because Cloudflare intentionally operates near break-even on profit or loss, and intends to do so for the foreseeable future, its stock is particularly susceptible to large swings in response to changes in interest rates. interest.
The stock price and ridiculous valuation aside, it’s not hard to see why Cloudflare has garnered so much investor attention. The company has no shortage of places to invest reserve money as it seeks to Amazonit is (NASDAQ:AMZN) Segment AWS and other lucrative cloud computing infrastructure services. Edge computing – in which data, services and software hosted in centralized data centers are moved to servers closer to end users – is the future, and Cloudflare is in pole position in the space, by building the basic infrastructure necessary to make it possible.
If you decide to start chipping away at this stock after its steep decline, do so in a patient and measured manner. Cloudflare’s stock price volatility isn’t going away any time soon, so buy in small amounts and build a larger position in this promising tech company over time.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.