Cloudflare (NET) Stock Could Be 38% Too Rich After Delaware Ruling

Cloudflare has seen its share price swing sharply in recent years, which puts fresh attention on what investors are really paying for in terms of the company’s cash flows. After that kind of journey, the core issue is whether the current valuation still lines up with the cash the business is expected to generate.

• Over the past 3 years the stock has gained about 293.2%, which puts a lot of weight on the question of how much future cash flow is already reflected in the price.
• Recent headlines around both a Delaware court ruling affecting Cloudflare’s recapitalization plans and the launch of its Zero Wire vulnerability feed can influence expectations for governance stability, growth investment and ultimately the timing and durability of future cash flows.
• What if you looked at Cloudflare through its sales instead? See what Cloudflare's 34.7x P/S says about the price.

The issue now is whether Cloudflare’s current share price is justified by the cash flows that its business can reasonably be expected to produce over time according to the Discounted Cash Flow (DCF) intrinsic value estimate.

If this kind of valuation question around Cloudflare has your attention, you can run the same cash flow lens across a wider set of companies using 42 high quality undervalued stocks.

Is Cloudflare Getting Expensive on Cash Flow?

The Discounted Cash Flow (DCF) model values Cloudflare by estimating the future cash it can return to shareholders and then discounting those amounts back to today. Cloudflare generated last twelve month free cash flow of about $299.3 million, and the DCF framework assumes that this figure continues to grow over the coming decade rather than shrink or stay flat.

On these projections, Cloudflare’s cash flows reach into the low single digit billions of $ by the mid 2030s, which is a sizeable ramp from where the business sits today. The DCF projections put Cloudflare's estimated intrinsic value substantially below the current share price of $244.51, so the market is asking investors to pay a premium to those cash flow assumptions. The Delaware court ruling that adds uncertainty around Cloudflare’s recapitalization helps explain why some holders may question how much governance risk is now embedded in that premium. Find out what Cloudflare could be worth using our Discounted Cash Flow (DCF) estimate.

The Cloudflare Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for Cloudflare pick up where the DCF puzzle leaves off and spell out which specific paths for growth, profitability and earnings would need to play out for the stock to look meaningfully cheap or stretched relative to today's price. Each narrative links its number to a clear view on how Cloudflare's growth, margins and risk profile could evolve, so you can come back to that thesis as fresh information is released. These sit on Simply Wall St's Community page and provide a structured way to compare different interpretations of the same cash flow story.

Community views on Cloudflare are split between those who see long term demand and margin potential as underappreciated, and those who think the quality story is already priced in.

Bull case: 28% undervalued

"The accelerating adoption of AI, explosion in global web traffic, and proliferation of IoT devices are driving increased demand for fast, secure, and resilient cloud-native infrastructure..."

Discover why this Narrative puts Cloudflare at 28% undervalued.

Bear case: 46% overvalued

"Cloudflare may be one of the cleaner infrastructure names in the Q-Day conversation, but the stock already prices in a lot of quality..."

Explore why this Narrative puts Cloudflare at 46% overvalued.

Before acting on Cloudflare’s valuation, look at who is steering the ship

Price and cash flows only tell part of the story, because the people setting Cloudflare’s direction and how they are rewarded can heavily influence the risks you are really taking on. See who runs Cloudflare and how they are paid.

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