NET – Unveiling the Surge - What's Driving the Stock's Ascent?

During today's morning trading session, Cloudflare took the market by storm, rocketing to $111.81 per share despite it now being above its mean target price of $79.08. This 23.8% movement implies there may not be much more room for upwards movement for the stock -- if its analysts are to be believed. They are giving the Software stock on average rating of hold, with target prices ranging from 45.0 to 110.0 dollars per share.

To understand the market's outlook on the stock, we can look at Cloudflare's short interest: the proportion of the fshare float that is tied to short positions. Behind each short position is an investor who believes that the stock will decline in the future. Here, the stock's short interest is 6.0% which means the outlook is split.

When a stock is sold short, it means an investor has borrowed shares of the stock from their broker, and then sold them at the going market price. The investor hopes for the price to decline, so that they might buy those shares back at a lower price in the future. Once they do, they can return the borrowed shares to their broker, and keep the profit they made on the transaction.

Another way to gauge the sentiment on Cloudflare is to look at the percentage of institutions that are invested in the stock. In this case, 87.7% of the shares are held by pension, mutual, and hedge funds, which shows that these institutions probably have strong confidence in the stock.

If institutions are invested in a particular stock, it shows in most cases that they have performed quality research and concluded that it is a good investment. In some cases, however, increases in institutional ownership could be a sign of a takeover attempt or proxy fight, which can actually injure share prices. Also, institutions are not infallible, and can certainly make miscalculations -- often with spectacular results.

Overall, there is mixed market sentiment on Cloudflare because its an analyst belief that shares are overpriced, a hold rating, an average amount of shares sold short, and a significant number of institutional investors. Warren Buffett famously said that in the short term, markets are voting mechanisms, but in the long term, they are weighing mechanisms. This means that long term investors should be aware of a stock's fundamentals before committing.

Buffett was one of the fist investors to focus on free cash flow as a yardstick for a company's health. Here are NET's recent cash flows:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023 247,088 123,725 123,363 716.48
2022 123,595 143,606 -20,011 29.38
2021 64,648 92,986 -28,338 61.45
2020 -17,129 56,375 -73,504 10.59
2019 -38,917 43,289 -82,206
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.