What's Driving Cloudflare Inc's Surprising 24% Stock Rally?

Cloudflare Inc (NET, Financial) has experienced a notable uptick in its stock price, reflecting a positive sentiment among investors. Over the past week, the company's stock price has seen a gain of 6.28%, while the past three months have witnessed an impressive 23.85% increase. With a current market capitalization of $26.29 billion and a stock price of $78.31, Cloudflare stands out as a significant player in the software industry. The GF Value of Cloudflare is currently $120.74, down from a past GF Value of $138.11. Despite this decrease, the company remains significantly undervalued according to both current and past GF Valuation metrics.

Introduction to Cloudflare Inc

Cloudflare Inc, operating within the competitive software industry, is a San Francisco-based company that specializes in providing security and web performance services. Its distributed content delivery network (CDN) and edge computing platform, Workers, enable clients to deploy and execute code without the need for server maintenance. This innovative approach has positioned Cloudflare as a key provider of internet infrastructure services. 1730228861209210880.png

Assessing Cloudflare's Profitability

Cloudflare's Profitability Rank stands at 3 out of 10, which suggests challenges in this area. The company's Operating Margin is currently at -15.99%, which is better than 27.43% of 2,778 companies in the same industry. Its Return on Equity (ROE) is -31.45%, surpassing 20.02% of its peers, while the Return on Assets (ROA) at -7.85% is better than 32.51% of industry counterparts. The Return on Invested Capital (ROIC) is -19.21%, which is higher than 23.71% of the industry. These figures indicate that while Cloudflare's profitability metrics are not leading the industry, they are competitive within its sector.

Cloudflare's Growth Trajectory

Cloudflare's Growth Rank is 6 out of 10, reflecting a solid trajectory in revenue and profitability. The company's 3-Year Revenue Growth Rate per Share is 15.10%, outperforming 65.14% of 2,404 companies in the industry. Over a 5-year period, the Revenue Growth Rate per Share is an even more impressive 25.30%, better than 87.45% of 1,889 companies. Looking ahead, the Total Revenue Growth Rate (Future 3Y To 5Y Est) is projected at 29.62%, which is superior to 94.46% of 505 companies. The 3-Year EPS without NRI Growth Rate stands at 6.40%, and the EPS Growth Rate (Future 3Y To 5Y Est) is expected to be a robust 71.92%, indicating strong future earnings potential.

Significant Shareholders in Cloudflare

Among the notable shareholders of Cloudflare, Baillie Gifford (Trades, Portfolio) holds a significant position with 31,058,224 shares, accounting for 9.25% of the company's share percentage. Frank Sands (Trades, Portfolio) is another major holder with 11,007,391 shares, representing 3.28% of the shares. Additionally, Ron Baron (Trades, Portfolio) holds 939,529 shares, which equates to a 0.28% share percentage. The confidence of these prominent investors further underscores the potential they see in Cloudflare's business model and growth prospects.

Competitive Landscape

When comparing Cloudflare to its closest competitors based on market capitalization, we see that VeriSign Inc (VRSN, Financial) has a market cap of $21.61 billion, Fleetcor Technologies Inc (FLT, Financial) is valued at $17.13 billion, and Akamai Technologies Inc (AKAM, Financial) stands at $17.45 billion. These companies, while operating within the same industry, have different market valuations, indicating the diverse strategies and market positions within the software sector.

Conclusion: Cloudflare's Market Position and Future Outlook

In summary, Cloudflare Inc's current valuation status remains significantly undervalued according to the GF Value metric. Despite profitability challenges, the company's growth metrics are strong, with revenue and earnings per share growth rates outperforming a majority of its industry peers. The positions held by significant shareholders such as Baillie Gifford (Trades, Portfolio), Frank Sands (Trades, Portfolio), and Ron Baron (Trades, Portfolio) reflect a vote of confidence in Cloudflare's future. Moreover, when compared to its competitors, Cloudflare's market cap suggests a robust standing within the industry. Investors may find Cloudflare's current undervaluation and growth prospects to be an attractive opportunity in the software sector.

This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.

Disclosures

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