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IBD 50 Stocks To Watch: Cybersecurity Leader Cloudflare Eyes New Buy Point Before Earnings

Tuesday’s IBD 50 Stocks To Watch pick, cybersecurity leader Cloudflare (NET), is approaching a new buy point ahead of next week’s earnings results. Shares rallied over 3% midday Tuesday.




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San Francisco-based Cloudflare speeds up and provides security for web applications routed through its intelligent global network. The company competes in both corporate and consumer markets. Cloudflare also offers a wide range of software-as-a-service products that leverage a global cloud network. The network spans nearly 200 cities and interconnects over 8,000 networks globally.

On April 13, Cloudflare announced a partnership with Nvidia (NVDA) that will enable customers to build artificial intelligence-based apps that run on Cloudflare’s security network. Nvidia is an IBD Leaderboard stock.

Cloudflare’s earnings are due out May 6 after the stock market close. Analysts expect the company to lose 3 cents per share on revenue of $131 million. In fact, Cloudflare has yet to have a profitable year. That’s why the stock has a measly 51 Earnings Per Share Rating.

Its loss narrowed in 2020 from the previous year, and analysts expect an even smaller loss of 9 cents a share this year. Cloudflare is expected to become profitable in 2022. But while it’s been unprofitable, the company’s sales growth ranged from 48% to 54% the past eight quarters, according to IBD MarketSmith. That helps explain why the number of funds that own Cloudflare stock has more than doubled since Q2 of 2020.


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Cybersecurity Leader’s IBD Stock Ratings

Cloudflare ranks No. 21 in the IBD 50. (The IBD 50 is a list of leading growth stocks with strong relative price strength and top-notch fundamentals.)

The stock shows a modest C SMR Rating, according to IBD Stock Checkup. The Earnings Per Share Rating tracks a company’s earnings strength. The SMR Rating analyzes a company’s sales, margins and return on equity, and offers a letter grade from A (the best) to E (the worst).

IBD Stock Checkup also shows that Cloudflare stock has a mild 71 out of a perfect 99 IBD Composite Rating, due to a lack of strong fundamentals. The Composite Rating — an easy way to identify top growth stocks — is a blend of key fundamental and technical metrics to help investors gauge a stock’s strengths.


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Stocks To Buy And Watch: Cloudflare Stock

Cloudflare stock is tracing a cup-shape base with a 95.87 buy point, according to IBD MarketSmith chart analysis. Shares are about 9% away from the new entry amid Tuesday’s sharp gains. Keep an eye out for a handle to offer a more risk-optimal buy point. Also, buying before earnings is risky since the stock can gap down on disappointing earnings results. Check out IBD’s options trading strategy around earnings.

A potential flaw is the stock’s lagging relative strength line. It remains off its old highs; however, there is still plenty of time for it to strengthen ahead of a potential breakout. The RS line measures a stock’s price performance vs. the general market. It is the blue line on every IBD chart.

Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on growth stocks and the stock market.

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