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Things Are Looking Up for Cloudflare as Value Collides With Growth

Some may be asking, “What just happened?” But when it comes to Cloudflare (NYSE:NET), it’s a little late for that. And in fact, it’s a better time to act as a bull in NET stock.

Close up of Cloudflare logo at the Company's headquarters
Close up of Cloudflare logo at the Company's headquarters

Source: Sundry Photography / Shutterstock.com

Let’s look at what’s happening off and on the price chart of NET. Then, we will offer a risk-adjusted determination that’s well-built for possibilities other than today’s bearish narrative with less worry of downside exposure.

What’s Happening to Cloudflare Shares

It’s not exactly a secret Wall Street has lost its nerve in higher multiple growth stocks in recent weeks. Just look at the movement in Shopify (NYSE:SHOP), Rivian Automotive (NASDAQ:RIVN), Block (NYSE:SQ) (formerly Square) and many others.

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I also wouldn’t be the first to tell you another wave of inflation and Covid fears continue to be the primary drivers behind investors’ recalibration of risk.

More importantly, price is what you pay, and value is what you receive — and NET stock has quickly shaped up into a relative and absolute bargain deserving of bullish investors’ consideration.

There was once boastful chest beating over items such as NET stock’s 50% three-year compounded annual growth rate (CAGR) or net revenue retention rate of nearly 125%. But this has become collateral damage amid the past month’s precipitous, but common corrective move.

And if that doesn’t sound like good news for Cloudflare, it is.

It’s time to tune out the more pervasive pessimism and worry about the cloud-based, security and software-as-a-service (SaaS) upstart. Investors should consider purchasing NET stock where value is colliding with growth.

NET Stock Weekly Price Chart

Cloudflare (NET) shares are now in a key testing area of channel and multilayered Fibonacci support
Cloudflare (NET) shares are now in a key testing area of channel and multilayered Fibonacci support


Source: Charts by TradingView

Calling a top is hard. So is forecasting a bottom. But last month, we did a spot-on job of estimating the latter, warning a bear market cycle was at hand in NET stock as shares peaked.

The fact is even the best stocks, like Apple (NASDAQ:AAPL) or Tesla (NASDAQ:TSLA), correct from time to time. There are no exceptions.

Now, and with this week’s lows shedding some 33% of NET’s valuation, a classic price decline is in play. What’s more, Cloudflare shares are also testing an extremely attractive area of key technical support.

Backed by three Fibonacci cycles dating back to last year’s pandemic-driven bottom and a longstanding bullish channel, NET shares have entered a wide but critical layered band of price support from roughly $93 to $143.

Within the volatile stock range, the first three Fibonacci levels and prior channel resistance offer a tighter zone from about $136 to $143. There, bullish investors can monitor NET for bottoming and an end to the bearish cycle.

What to Do With NET Stock

In considering a purchase, I’d stick with the weekly chart and, at a minimum, demand that a nearly oversold stochastics flattens from its currently south-facing direction.

I’d also want to see candlestick confirmation of a bottoming candle without having a full-blown bullish crossover from the secondary indicator in place.

Alternatively, if NET stock moves aggressively lower into the wider support zone in the days ahead, I’d be more tolerant of perceived risk on the price chart.

Even if shares of Cloudflare were to hit the bottom line on our price chart, with the other one on the income statement still M.I.A., using a hedged options strategy in lieu of a naked long position in NET stock is prudent business that even Warren Buffett might appreciate.

On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

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