The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you pick the right business to buy shares in, you can make more than you can lose. Take, for example Cloudflare, Inc. (NYSE:NET). Its share price is already up an impressive 187% in the last twelve months. On top of that, the share price is up 47% in about a quarter. We'll need to follow Cloudflare for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.
Cloudflare wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Cloudflare grew its revenue by 51% last year. That's well above most other pre-profit companies. Meanwhile, the market has paid attention, sending the share price soaring 187% in response. That sort of revenue growth is bound to attract attention, even if the company doesn't turn a profit. The strong share price rise indicates optimism, so there may be a better opportunity for buyers as the hype fades a bit.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. You can see what analysts are predicting for Cloudflare in this interactive graph of future profit estimates.
A Different Perspective
It's nice to see that Cloudflare shareholders have gained 187% over the last year. And the share price momentum remains respectable, with a gain of 47% in the last three months. Demand for the stock from multiple parties is pushing the price higher; it could be that word is getting out about its virtues as a business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 3 warning signs for Cloudflare you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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