Why Cloudflare Stock Climbed 23.7% in June

What happened

Shares of Cloudflare (NYSE:NET) jumped 23.7% in June, according to data from S&P Global Market Intelligence. The cybersecurity stock saw big gains near the middle of the month following positive coverage from an analyst.

^SPX data by YCharts

Needham analyst Alex Henderson published a note on June 17 maintaining his “buy” rating on Cloudflare and hiking his one-year price target on the stock from $32 to $38 per share. Henderson’s price target suggested roughly 18% upside on the stock at the time of the note’s publication, and the coverage helped the company’s valuation hit a new lifetime high. 

So what

Cloudflare provides edge-computing services and internet infrastructure that helps protect websites from hacking attacks, and its stock has posted stellar performance since the company went public last September. Shares are up more than 140% from the company’s $15 IPO price, with gains being driven by strong revenue growth and a promising outlook for the company’s cybersecurity services.

Henderson’s bullish note on the stock in June cited growing demand for 5G edge-computing services and businesses increasingly shifting operations online as positive catalysts Cloudflare. The company is a leading provider of essential internet security services, and it’s positioned to benefit from the long-term growth of internet communications and digital commerce.

Now what

Cloudflare stock has continued to gain ground early in July’s trading, with shares up roughly 3% in the month so far.

NET data by YCharts

Cloudflare is now valued at roughly 28.5 times this year’s expected sales. Its valuation might look lofty at first blush, but the business is posting impressive growth and has a long runway for expansion. I purchased shares in June and think the tech company could prove to be a big winner for investors who are willing to embrace potential volatility in order to capitalize on growing demand for cybersecurity services.

Cloudflare’s sales have grown at a 50% compound annual growth rate from 2016 through 2019, and the company expects revenue will grow roughly 36.5% this year despite significant near-term headwinds stemming from the coronavirus pandemic. The company’s current valuation could look very cheap five years down the line.

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