Cloudflare Inc (NET, Financial) recently experienced a daily gain of 5.86%, despite a 3-month loss of 5.62% and a per share loss of $0.67. This raises the question: Is the stock significantly undervalued? This article aims to answer this question by providing a detailed valuation analysis of Cloudflare. Read on to discover more about the company's financial position and future prospects.
Company Introduction
Cloudflare Inc (NET, Financial) is a software company based in San Francisco, California. It offers security and web performance solutions using a distributed, serverless content delivery network (CDN). The firm's edge computing platform, Workers, allows clients to deploy and execute code without maintaining servers. Despite its current stock price of $60, its fair value (GF Value) stands at $143.18, suggesting that the stock could be significantly undervalued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It's calculated based on historical trading multiples, GuruFocus's adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line serves as a guideline for the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Cloudflare's stock is estimated to be significantly undervalued, according to GuruFocus Value calculation. With a current price of $60 per share and a market cap of $20.10 billion, the stock appears to offer a promising future return.
Since Cloudflare is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Cloudflare has a cash-to-debt ratio of 1.09, which ranks worse than 64.24% of 2752 companies in the Software industry. The overall financial strength of Cloudflare is 5 out of 10, indicating that its financial strength is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Cloudflare's profitability has been poor, with an operating margin of -17.75%, ranking worse than 72.39% of 2785 companies in the Software industry.
However, the company's growth prospects look promising. The average annual revenue growth of Cloudflare is 15.1%, which ranks better than 65.62% of 2414 companies in the Software industry. The 3-year average EBITDA growth is 20.4%, ranking better than 67.96% of 2007 companies in the Software industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Cloudflare's ROIC of -20.79 is less than its WACC of 13.62, indicating that the company is not creating value for its shareholders.
Conclusion
In conclusion, Cloudflare (NET, Financial) stock is estimated to be significantly undervalued. The company's financial condition is fair, and its profitability is poor. However, its growth prospects are promising, ranking better than 67.96% of companies in the Software industry. To learn more about Cloudflare stock, you can check out its 30-Year Financials here.
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