Investors Are Actively Looking Into Cloudflare, Inc. (NET): Key Information You Should Be Aware Of

Cloudflare (NET) Attracts Investor Attention: Key Factors to Watch

Cloudflare has recently become one of the most searched stocks, prompting investors to consider the main elements that could impact its performance in the short term.

Over the past month, Cloudflare's share price has declined by 3.2%, while the Zacks S&P 500 composite rose by 0.6%. The Internet - Software sector, which includes Cloudflare, experienced a 9.8% drop during the same period. This raises the question: what direction might Cloudflare's stock take next?

Although news headlines or speculation about significant business changes can cause immediate stock price swings, long-term investment decisions are typically driven by core fundamentals.

Earnings Estimate Trends

At Zacks, the primary focus is on shifts in a company's earnings outlook, as the present value of future earnings is a key driver of stock valuation.

We monitor how analysts update their earnings projections in response to recent business developments. When earnings estimates increase, the perceived fair value of the stock rises, which can attract buyers and push the price higher. Research consistently shows a strong link between changes in earnings estimates and short-term stock price movements.

Currently, Cloudflare is projected to report earnings of $0.23 per share for this quarter, a 43.8% increase compared to last year. However, the Zacks Consensus Estimate has dropped by 132.8% over the past month.

For the full fiscal year, the consensus estimate stands at $1.11 per share, up 19.4% year-over-year, but this figure has decreased by 604.2% in the last 30 days.

Looking ahead to the next fiscal year, analysts expect earnings of $1.43 per share, which would be a 28.4% improvement from the previous year. This estimate has fallen by 8.9% in the past month.

With a strong performance history, the Zacks Rank system leverages earnings estimate revisions to provide a clear view of a stock’s near-term prospects. Based on recent changes and other related factors, Cloudflare currently holds a Zacks Rank #4 (Sell).

The following chart illustrates the trend in Cloudflare's forward 12-month consensus EPS estimate:

Revenue Outlook

While earnings growth is a vital indicator of financial strength, sustained revenue growth is necessary to support long-term profit increases. Understanding a company's revenue potential is therefore essential.

For Cloudflare, analysts anticipate sales of $621.91 million this quarter, representing a 29.8% increase from the prior year. Full-year revenue estimates are $2.8 billion for the current year and $3.57 billion for the next, reflecting growth rates of 29.3% and 27.3%, respectively.

Recent Results and Earnings Surprises

In its latest quarterly report, Cloudflare posted revenues of $614.51 million, up 33.6% year-over-year. Earnings per share reached $0.28, compared to $0.19 in the same period last year.

These results exceeded the Zacks Consensus Estimate of $590.17 million in revenue by 4.12%, and the EPS beat was 3.7% above expectations.

Over the past four quarters, Cloudflare has surpassed consensus EPS estimates three times and exceeded revenue projections in every quarter.

Valuation Analysis

Evaluating a stock’s valuation is crucial for making informed investment choices. Determining whether the current share price accurately reflects the company’s intrinsic value and growth prospects is key to predicting future performance.

Comparing valuation ratios like price-to-earnings, price-to-sales, and price-to-cash flow with historical averages and industry peers helps assess whether a stock is fairly valued, overpriced, or undervalued.

The Zacks Value Style Score, which grades stocks from A to F based on various valuation metrics, is a useful tool for this analysis. Cloudflare currently receives an F, suggesting it is trading at a premium compared to its peers.

Conclusion

The information presented here, along with additional resources on Zacks.com, can help investors decide whether to pay attention to the current market interest in Cloudflare. However, its Zacks Rank #4 indicates that the stock may underperform the broader market in the near future.