#NET #investing #stockanalysis
**Overvaluation Concerns and Downside Risks**
Cloudflare Inc. (NET) appears to be significantly overvalued when considering the company’s fundamentals. The company reported a comprehensive income loss of $85,037,000 for the fiscal year 2024, a net income loss of $78,800,000, and a diluted earnings per share of -$0.23. These figures indicate that the company is currently not profitable, which raises concerns about its valuation.
Moreover, the company’s balance sheet reveals that its liabilities outweigh its assets, with total liabilities of $2,254,961,000 against total assets of $3,301,162,000. This suggests that the company may face liquidity issues in the future, which could further dampen its financial prospects.
**Price and Technical Analysis**
From a technical analysis perspective, NET’s share price has been trending downwards. The latest readings from the moving average indicators show a bearish trend, with the share price falling below the 14-day simple moving average. This is a strong sell signal, suggesting that the stock may continue to decline in the short-term.
**Negative Catalysts and Headwinds**
Cloudflare faces several headwinds that may negatively impact its performance. The company operates in a highly competitive market, with competitors such as Amazon Web Services, Google Cloud, and Microsoft Azure. These competitors have significantly more resources than Cloudflare, which could put the company at a competitive disadvantage.
In addition, the company’s high research and development costs, which amounted to $421,374,000 in fiscal year 2024, could potentially hamper its profitability. Unless these investments translate into significant revenue growth, they could continue to weigh on the company’s bottom line.
**Technical Weakness Suggesting Lower Prices**
The stock’s technical indicators suggest that it could face further downside. The relative strength index (RSI) is trending towards oversold levels, which typically precedes a downturn in the stock’s price. Additionally, the moving average convergence divergence (MACD) line has crossed below the signal line, another bearish signal.
**Price Prediction and Downside Potential**
Taking into consideration the company’s fundamentals, the competitive landscape, and the technical indicators, there is a substantial downside risk for NET. The company’s unprofitability, high liabilities, and tough competition suggest that the stock is likely overvalued at its current price. The bearish technical indicators further reinforce this view.
**Recommendation: SELL**
Given the above, we recommend selling NET. The company’s upside price targets have been hit, and there appears to be substantial potential for downside risk. Investors should consider exiting their positions to protect against potential losses.
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