Cloud-based security platform Cloudflare (NYSE:NET) is a right-place, right-time type of tech company in 2020. The onset of the novel coronavirus has induced a shift to remote work and collaboration, thereby increasing the need for network security. As a result, buyers have bid up the price of Cloudflare stock substantially this year.
Other factors have contributed to the vast increase in the Cloudflare stock price, as well. For one thing, cloud computing has been a red-hot tech sub-sector for a while now. Plus, identity management has gained traction as a niche market.
All that being said, not everyone is on board with Cloudflare stock as an investment. Value-focused traders might consider the shares overpriced. They might choose to sit on the sidelines after the stock’s recent run-up.
This, then, begs the question of whether a high flyer like Cloudflare stock can offer value even at an elevated price point. That’s a valid question, so let’s begin with a more detailed analysis of this fast-moving stock.
A Closer Look at Cloudflare Stock
As InvestorPlace contributor William White reported, the initial public offering (IPO) for Cloudflare stock took place in September of last year. From that month until February 2020, the share price stayed below $20.
In hindsight, it’s now obvious that Cloudflare stock below $20 was a terrific bargain. There was a brief share-price dip in March of this year, during the coronavirus crisis. However, that was followed by a moon shot of epic proportions.
With unrelenting momentum, the Cloudflare stock price touched $40 in July. Moreover, during the first half of October, a bidding frenzy pushed the share price all the way up to a 52-week high of $61.86.
For value-oriented investors, this might seem like a case of “too much, too fast.” I’ll admit, it is a concern that Cloudflare stock has trailing 12-month earnings per share of -72 cents. Yet, a new product might convince the skeptics to give this admittedly pricey stock a chance.
A Platform for a Trust-less World
On Oct. 12, Cloudflare announced the release of Cloudflare One. I personally believe that this service alone can justify a long position in Cloudflare stock, even at the currently lofty price point.
Targeted towards businesses, Cloudflare One is billed as a comprehensive, cloud-based network-as-a-service solution designed to keep workforces secure.
It might be unfortunate that we live in a trust-less world nowadays. Yet, it’s necessary for today’s businesses to implement zero-trust network architecture as identity-stealing hackers and other miscreants are always lurking.
Therefore, as Cloudflare points out, “With the rapid shift to remote work caused by the pandemic, businesses of all sizes are looking to adopt a Zero Trust architecture.” It’s odd to think of Cloudflare stock as a coronavirus stock, but that’s the reality of the situation when trust is a luxury that today’s businesses can’t afford.
The adoption of zero-trust network platforms is already largely in progress. Cloudflare cites a recent study conducted by Forrester Consulting which found that “82% of all organizations have already committed to migrating to a Zero Trust security architecture.”
So clearly, the market is ready and waiting for this type of product. But what makes Cloudflare One a compelling zero-trust network security platform?
Basically, Cloudflare One acts as a corporate firewall or gateway for its users irrespective of where they’re working from. Or, as White put it, Cloudflare One “requires authorization from users both inside and outside of the business.”
Enforcing additional security requirements should result in enhanced network security. Some of today’s browsers are particularly vulnerable to attacks, and Cloudflare One is specially designed to protect devices and networks even among workers in multiple locations.
The Bottom Line
Cloudflare One is a timely service addressing a high-need area with mass adoption already in place. So yes, Cloudflare stock is pricey, but in a trust-less world it’s worth paying extra for next-gen solutions.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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