Is It Time to Buy This Beaten-Down Stock?

A marijuana stock and a hungry young IT company were among the market's victims on Thursday.

Eric Volkman

Oct 10, 2019 at 11:21PM

Cloudflare

There wasn't anything immediately apparent that drove Cloudflare (NYSE:NET) stock down nearly 6% at Thursday's close.

What might be an influence is the end of the quiet period for investment banks involved in the company's September IPO. This happened a few days ago and most of the numerous research notes on Cloudflare stock have been positive.

Most, but not all -- Goldman Sachs and Morgan Stanley are cautious about the stock, both believing it's fairly valued. Somewhat uncomfortably, those two influential banks were among the leads in Cloudflare's IPO syndicate.

Cloudflare is one of a rapidly growing clutch of software-as-a-service (SaaS) providers offering a suite of software products. Perhaps investors are getting concerned that the market is becoming crowded. The company also has two classes of stock, a shareholder structure that has come under plenty of criticism lately.


Cloudflare isn't profitable on the bottom line, but that's par for the course for an ambitious software slinger that has recently gone public. Revenue growth is still robust -- however, costs are rising notably, too.

SaaS is a corner of the IT sector that has vast potential in front of it, but with so many investments to choose from, it might be that investors are getting picky. To me, although it has plenty of potential, Cloudflare hasn't distinguished itself yet in its young life, and has yet to prove it can consistently produce a bottom-line profit. I'd leave the stock alone for now.