Growth stock Cloudflare is Thursday's selection for IBD 50 Growth Stocks To Watch. NET stock has topped a buy zone.
Cloudflare's global platform securely connects users to the internet. The security software company boasts that it serves roughly 20% of all internet traffic and reaches more than 120 countries.
Its R2 Storage provides infrastructure for generative artificial intelligence companies that eliminate cloud network data fees.
NET stock holds the No. 1 spot out of 126 stocks in the Computer Software-Enterprise industry group. The group ranks 39th out of the 197 IBD industry groups, according to MarketSmith.
Cloud Growth Stock In The Zone
Shares of the internet connectivity player bounced back after a brief sell-off and are sitting at the top of the 5% buy zone of a cup base with a 76.07 buy point. The buy zone stretches to 79.87.
The growth stock broke out on Nov. 29, and rose to a 52-week high on Dec. 27. Software and tech growth stocks fell hard on Jan. 2 as Treasury yields rose.
NET stock fell below its 21-day exponential moving average and undercut the buy point. But the stock improved and is now testing the 21-day line and remains above its 50-day moving average.
NET Stock: Earnings Continue To Grow
The software company beat third-quarter earnings and sales estimates when it reported on Nov. 2. Quarterly earnings grew to 16 cents a share from 6 cents in last year's quarter. Sales grew 32% for two straight quarters following 37% growth two quarters ago. The company says 48% of its revenue comes from outside the U.S.
Management raised its fourth-quarter and full-year 2023 earnings estimates, with both topping analysts' expectations. Its revised fourth-quarter sales projection disappointed analysts, but its updated full-year sales forecast exceeded Wall Street's estimates.
"In our third quarter, we relentlessly innovated and accelerated our efforts in AI, announcing the most complete platform to deploy fast, secure, compliant AI inference at scale with Workers AI — along with several partnerships and collaborations with the who's who of AI," said Chief Executive Matthew Prince said in the earnings report.
Third-quarter free cash flow was $34.9 million vs. a negative $4.6 million in the prior year's quarter.
Cloudflare announced it expects to release its fourth-quarter earnings report on Feb. 8, after the market close. Full-year profit is expected to grow 19% in 2024, according to MarketSmith data.
Institutions Favor The Cloud Stock
Cloudflare stock has a hearty Up/Down Volume Ratio of 2.1, indicating high demand for the stock in the last 50 days. The company holds an IBD Accumulation/Distribution Rating of B+, showing fairly heavy institutional buying over the last 13 weeks.
Mutual funds own 64% of shares as 1,253 funds held the cloud stock as of December. That's up from 1,243 in September and 1,239 in June.
NET stock holds a best-possible 99 IBD Composite Rating and a strong 93 Relative Strength Rating.
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