We think all investors should try to buy and hold high quality multi-year winners. And we've seen some truly amazing gains over the years. Just think about the savvy investors who held Cloudflare, Inc. (NYSE:NET) shares for the last five years, while they gained 323%. And this is just one example of the epic gains achieved by some long term investors. On the other hand, the stock price has retraced 7.4% in the last week. But note that the broader market is down 4.4% since last week, and this may have impacted Cloudflare's share price.
Since the long term performance has been good but there's been a recent pullback of 7.4%, let's check if the fundamentals match the share price.
Cloudflare isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.
For the last half decade, Cloudflare can boast revenue growth at a rate of 35% per year. Even measured against other revenue-focussed companies, that's a good result. Arguably, this is well and truly reflected in the strong share price gain of 33%(per year) over the same period. Despite the strong run, top performers like Cloudflare have been known to go on winning for decades. So we'd recommend you take a closer look at this one, but keep in mind the market seems optimistic.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Cloudflare is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Cloudflare stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
Cloudflare's TSR for the year was broadly in line with the market average, at 21%. We should note here that the five-year TSR is more impressive, at 33% per year. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes Cloudflare a stock worth watching. It's always interesting to track share price performance over the longer term. But to understand Cloudflare better, we need to consider many other factors. For instance, we've identified 2 warning signs for Cloudflare that you should be aware of.
But note: Cloudflare may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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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.