Is It Too Late To Consider Cloudflare (NET) After Its 1-Year 87.7% Surge?

• For investors wondering whether Cloudflare shares are priced for perfection or still offer room for value, this article examines what the current market price might be implying.
• The stock last closed at US$211.25, with returns of 2.8% over 7 days, 4.8% over 30 days, 7.8% year to date, 87.7% over 1 year and 235.1% over 3 years.
• Recent coverage has focused on Cloudflare's role in internet security and performance, and how its position in software and infrastructure continues to attract attention from both institutions and individual investors. These themes form an important backdrop when assessing what is already reflected in the share price.
• At the same time, Cloudflare currently scores 0 out of 6 on Simply Wall St's valuation checks, as shown by its valuation score. The next sections therefore compare different valuation approaches and then outline a framework that can help you think about value in a more complete way.

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 could be worth today by projecting its future cash flows and then discounting those back to a single present value figure.

For Cloudflare, the model used is a 2 Stage Free Cash Flow to Equity approach, working off last twelve month free cash flow of about $311.3 million. Analysts have supplied detailed projections out to 2030, with Simply Wall St extrapolating additional years beyond that. Within the next decade, the model includes free cash flow projections that reach $1,685.3 million in 2030, with each forecast and extrapolated year discounted back to today using the same framework.

Pulling all those discounted cash flows together, the model arrives at an estimated intrinsic value of about $101.09 per share. Compared with the recent share price of $211.25, the DCF output suggests the stock is about 109.0% above this estimate, which points to a rich valuation on this measure.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Cloudflare may be overvalued by 109.0%. Discover 64 high quality undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Cloudflare.

Approach 2: Cloudflare Price vs Sales

For companies where profitability is limited or still developing, revenue-based metrics such as the P/S ratio can be a useful way to compare what investors are paying for each dollar of sales. This is particularly relevant in software and infrastructure, where reinvestment can weigh on earnings.

Growth expectations and risk still matter here. A higher expected growth rate or stronger competitive position can justify a higher P/S ratio, while more uncertainty usually points to a lower, more conservative multiple as a “normal” range.

Cloudflare currently trades on a P/S ratio of 34.30x. This is well above the IT industry average P/S of 1.59x and the peer average of 11.94x, which indicates that the market is assigning a premium to its revenue base. Simply Wall St’s Fair Ratio for Cloudflare is 12.85x, which is a proprietary estimate of what the P/S could be given factors such as earnings growth, profit margins, size, industry and risk profile.

The Fair Ratio is more tailored than a simple peer or industry comparison because it attempts to adjust for company-specific traits rather than relying on broad group averages. With Cloudflare’s actual P/S of 34.30x sitting well above the 12.85x Fair Ratio, the shares appear expensive on this measure.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Cloudflare Narrative

Earlier it was mentioned that there is an even better way to think about valuation, and that is where Narratives come in, letting you attach a clear story about Cloudflare to concrete numbers like your own fair value, and assumptions for future revenue, earnings and margins. You can then link that story to a forecast and a fair value that you can compare directly with today’s share price on Simply Wall St’s Community page.

Because Narratives sit on the platform used by millions of investors and update automatically when new earnings, news or analyst targets arrive, you can see how different views translate into numbers in real time. For example, one Cloudflare Narrative might lean toward the more cautious fair value of about US$149.16, while another leans toward the more optimistic US$318.00. Comparing those fair values with the current price can then help you decide whether the story you believe in lines up with a price you are comfortable paying or holding at.

For Cloudflare however we will make it really easy for you with previews of two leading Cloudflare Narratives:

🐂 Cloudflare Bull Case

Fair value: about US$232.43

Current price vs this fair value: around 9.1% below the narrative fair value

Analyst revenue growth assumption: about 28.2% a year

• Analysts connect strong demand for cloud security, zero trust and AI related workloads with long term customer retention and higher average revenue per customer.
• They factor in efficiency gains, cross selling and new high margin opportunities as reasons margins could improve over time.
• Key watchpoints include customer concentration, regulation, competitive pressure and uncertainty around how newer initiatives like Act 4 and AI monetization scale.

🐻 Cloudflare Bear Case

Fair value: about US$149.16

Current price vs this fair value: around 41.6% above the narrative fair value

Analyst revenue growth assumption: about 27.2% a year

• Bearish analysts focus on rising regulatory, geopolitical and compliance costs that could limit market reach and weigh on margins.
• They also highlight competition from hyperscalers and open source tools, along with energy and sustainability pressures on Cloudflare's network.
• This group questions whether AI security and platform themes are already well reflected in the share price, even if revenue keeps growing.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com