Is It Too Late To Consider Cloudflare (NET) After Its 83% One Year Surge?
- If you are wondering whether Cloudflare's share price still makes sense after its strong run, this article will help you unpack what that current price could imply about the company.
- Cloudflare's stock last closed at US$212.45, with returns of 8.8% over the past week, 12.2% over the past month, 8.4% year to date and 82.9% over the past year. The 3 year and 5 year returns stand at 289.6% and 196.3% respectively.
- Recent coverage around Cloudflare has continued to focus on its role in content delivery, security and edge computing services, with investors paying attention to how its platform is being adopted by developers and enterprises. News flow around customer wins, product updates and partnerships helps frame why the market is closely watching the stock at current levels.
- Despite this interest, Cloudflare currently scores 0 out of 6 on our valuation checks, as shown in our valuation score. Next, we will look at how different valuation approaches treat the stock and finish with a way of thinking about value that can give you an even clearer picture.
Cloudflare scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
Approach 1: Cloudflare Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model estimates what a company might be worth today by projecting its future cash flows and then discounting those back to a single present value figure.
For Cloudflare, the model uses last twelve month free cash flow of about $311.3 million and a 2 Stage Free Cash Flow to Equity approach. Analyst estimates and extrapolated projections suggest free cash flow reaching about $1.7b by 2030, with interim years between 2026 and 2035 ranging from roughly $368 million to $3.3b in projected free cash flow. All of these are expressed in US$ terms.
When all projected cash flows are discounted back using this framework, the estimated intrinsic value for Cloudflare is around $97.31 per share. Compared to the recent share price of $212.45, the DCF output implies the stock is 118.3% overvalued based on these inputs and assumptions.
Result: OVERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Cloudflare may be overvalued by 118.3%. Discover 48 high quality undervalued stocks or create your own screener to find better value opportunities.
Approach 2: Cloudflare Price vs Sales
For companies where investors focus on revenue and market share, the P/S ratio is often a useful cross check because it compares what the market is paying for each dollar of sales, rather than profits that can be volatile or low during heavy investment phases.
What counts as a reasonable P/S multiple usually reflects how much growth investors expect and how much risk they are willing to accept. Higher growth and lower perceived risk can support a higher P/S, while slower growth or higher uncertainty tends to align with a lower multiple.
Cloudflare is currently trading on a P/S ratio of 34.49x. This stands well above the IT industry average of 1.79x and also above the peer group average of 12.16x. Simply Wall St’s Fair Ratio framework estimates a P/S of 12.93x for Cloudflare, based on factors such as its growth profile, industry, profit margins, market cap and risk characteristics.
Compared with simple peer or industry comparisons, the Fair Ratio aims to be more tailored, because it adjusts for those company specific drivers rather than assuming one size fits all.
Since Cloudflare’s current P/S of 34.49x is materially higher than the Fair Ratio of 12.93x, this approach suggests the shares are trading at an elevated level.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your Cloudflare Narrative
Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St you can use Narratives, where you write the story you believe about Cloudflare, tie that story to specific forecasts for revenue, earnings and margins, and see the Fair Value that results from those numbers. You can then compare it with today’s price to decide whether the stock looks attractive, watch how your Fair Value updates automatically when new earnings or news arrive, and see how your view lines up with other investors. For example, one Cloudflare Narrative currently anchors on a Fair Value of about US$145.00, while another leans closer to about US$318.00. This shows how different but clearly explained stories can sit side by side on the Community page and help you decide which one feels closer to your own view.
For Cloudflare, however, we will make it really easy for you with previews of two leading Cloudflare Narratives:
Each one ties a different story to specific assumptions about revenue, earnings and valuation, so you can see what would need to be true for the stock to look appealing or stretched at today’s price of US$212.45.
Fair value in this bullish Narrative: about US$231.30 per share.
That is roughly 8.1% above the last close, so this Narrative views Cloudflare as modestly undervalued on its own assumptions.
Revenue growth assumption: 28.18% per year.
- Frames Cloudflare as a long term AI and cloud infrastructure play, with demand linked to AI workloads, global web traffic and IoT, plus partnerships such as JD Cloud and other AI focused collaborations.
- Assumes improving margins over time through operational efficiency, automation, platform scalability and higher value multi product enterprise deals.
- Flags risks around customer concentration, regulation, competition from hyperscalers and uncertainty around how newer initiatives like Act 4 and AI transaction models are monetized.
Fair value in this bearish Narrative: about US$145.00 per share.
That is around 31.7% below the last close, so this Narrative views Cloudflare as meaningfully overvalued on its own assumptions.
Revenue growth assumption: 26.24% per year.
- Focuses on rising regulatory and geopolitical pressures, higher compliance costs and potential internet fragmentation, which could limit Cloudflare’s effective market and weigh on margins.
- Highlights competition from hyperscalers, open source tools and tighter sustainability requirements, which together could pressure pricing, gross margins and free cash flow.
- Acknowledges that strong enterprise demand and AI related workloads could still support growth, but argues that the valuation implied by more cautious analyst targets already prices in more than these factors justify.
Taken together, these Narratives show the spread of reasonable views around Cloudflare, from a premium AI infrastructure growth story to a case where regulation, competition and rich multiples carry more weight.
If you find one of these stories lines up with how you see Cloudflare, you can use it as a starting point and then adjust the key assumptions to reflect your own expectations for growth, profitability and risk.
Curious how numbers become stories that shape markets? Explore Community Narratives
Do you think there's more to the story for Cloudflare? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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