The past six months have been a windfall for Cloudflare’s shareholders. The company’s stock price has jumped 58.8%, setting a new 52-week high of $180.80 per share. This run-up might have investors contemplating their next move.

Following the strength, is NET a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.

Why Are We Positive On NET?

Founded by two grad students of Harvard Business School, Cloudflare (NYSE: NET) is a software-as-a-service platform that helps improve the security, reliability, and loading times of internet applications.

1. Billings Surge, Boosting Cash On Hand

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Cloudflare’s billings punched in at $514.9 million in Q1, and over the last four quarters, its year-on-year growth averaged 27.9%. This performance was fantastic, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.

2. Projected Revenue Growth Is Remarkable

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.

Over the next 12 months, sell-side analysts expect Cloudflare’s revenue to rise by 25.6%. While this projection is below its 34.3% annualized growth rate for the past three years, it is eye-popping and indicates the market is forecasting success for its products and services.

3. Customer Acquisition Costs Are Recovered in Record Time

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Cloudflare is quite efficient at acquiring new customers, and its CAC payback period checked in at 30.2 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a strong brand reputation, giving it more resources pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

Final Judgment

These are just a few reasons Cloudflare is a high-quality business worth owning, and with the recent surge, the stock trades at 27.9× forward price-to-sales (or $180.80 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

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