As companies increasingly adopt artificial intelligence tools, cloud platforms are calling for security tools provided by companies like Cloudflare. Cloudflare stock is Tuesday's selection for IBD 50 Stocks To Watch.
Shares have formed a clear and symmetrical cup base with a buy point of 177.37, according to IBD MarketSurge. The blue dot on its daily chart shows that the relative strength line is at a new high as the stock approaches its buy point. That can lend strength to a breakout.
But the base is deeper than ideal and adds a flaw to the pattern. Also, it is prudent to proceed cautiously as this is a late-stage base that may not net the high gains that earlier bases tend to offer.
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Double-Digit Sales Growth
Sales growth has ranged between 27% and 32% over the past eight quarters. For the first quarter ended March 31, the enterprise software stock saw sales grow 27% to $479.1 million. Earnings growth was flat at 16 cents a share.
For the second quarter, its sales outlook sits at $500.5 million at the midpoint with earnings of 18 cents per share. For the full year, the company anticipates sales of $2.1 billion with earnings of 80 cents a share.
Shares gapped up on earnings on May 9 and built the right side of the base. The stock was on a six-day winning streak on Tuesday.
Cloudflare's cloud products and developer tools help connect to servers that standardize how AI platforms access external data. The enterprise software stock stands to benefit from demand for cybersecurity software as massive cloud platforms face burgeoning demand for AI tools and race to make their networks more secure.
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Cloudflare Stock Ranks Second To Palantir
Cloudflare ranks second in the software enterprise group, according to IBD Stock Checkup, with S&P 500 titan Palantir in lead position. As of Monday's closing price, shares had gained 58% year-to-date.
The stock holds a Composite Rating of 97 out of a best-possible 99. Its Relative Strength Rating also indicates that it has outperformed 97% of other stocks in the Investor's Business Daily database over the past 52 weeks. The Earnings Per Share Rating of 89 meets the recommended levels, based on IBD research.
Another strong point is Cloudflare's fund ownership. The number of funds holding the stock has exceeded 1,000 over the past eight quarters.
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More funds have been adding the stock to their holdings over the two most recent quarters. Cloudflare stock's price-volume metrics also show strong institutional support with a top-notch Accumulation/Distribution Rating of A. Demand also has surged over the past 50 trading days, giving it an Up/Down Volume Ratio of 2.3.
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