Cloudflare, Inc. (NYSE:NET) shareholders might be concerned after seeing the share price drop 29% in the last quarter. In contrast, the return over three years has been impressive. Indeed, the share price is up a very strong 141% in that time. After a run like that some may not be surprised to see prices moderate. Only time will tell if there is still too much optimism currently reflected in the share price.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
Check out our latest analysis for Cloudflare
Because Cloudflare made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Cloudflare's revenue trended up 40% each year over three years. That's much better than most loss-making companies. Meanwhile, the share price performance has been pretty solid at 34% compound over three years. But it does seem like the market is paying attention to strong revenue growth. Nonetheless, we'd say Cloudflare is still worth investigating - successful businesses can often keep growing for long periods.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free report showing analyst forecasts should help you form a view on Cloudflare
A Different Perspective
The last twelve months weren't great for Cloudflare shares, which performed worse than the market, costing holders 76%. The market shed around 19%, no doubt weighing on the stock price. Fortunately the longer term story is brighter, with total returns averaging about 34% per year over three years. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Cloudflare (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.
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