Cloudflare (NYSE:NET) stock supports a vitally important technology in today’s Internet. The company is growing rapidly, wisely investing ahead of growth.

But if you bought Cloudflare stock recently, as I did, you have a sick feeling in the pit of your stomach.

Its price is down by nearly half from its early November peak. It opened on Feb. 28 at about $110.61/share.

It’s still ferociously expensive, by any standard measure. Revenue for 2021 was $656 million. The market capitalization is a little over $35 billion. It’s selling for 53 times revenue.

Is it time to dump it and wait for better days? It depends on your perspective.

Investing vs. Trading

If your time horizon for profit is short, you should have been out of stocks like Cloudflare at the first sign of trouble.

Cloudflare is down for macro reasons, not micro reasons. The tech wreck was followed by inflation, which was followed by a war in Europe. All tech stocks are down. The S&P is down 9% year to date.

But Cloudflare’s business is doing great. Gross margins in the most recent quarter were 77%. Operating cash flow was positive. But research costs nearly doubled. The company is also expanding from security services into “cloudless cloud,” with cloud workloads stored in many locations and not just one.

Cloudflare has become one of the most important companies in the Internet space.  Its infrastructure is great for stopping Distributed Denial of Service (DDoS) attacks, where servers are flooded with bogus traffic to shut them down. Its knowledge on where data is moving also helps it stop ransomware attacks.

By using its own Domain Name System (DNS), it can place large low latency data stores close to where they’re being used. This makes it a competitor to companies like Akamai (NASDAQ:AKAM), whose local storage is built on dedicated infrastructure.

The pandemic was great for Cloudflare. The move toward cloud gaming and remote work are great for Cloudflare International tensions are even good for Cloudflare. But the cost of leadership is high. That’s why research costs doubled over the last year. Cloudflare has also launched a paid bug bounty program to get more help in protecting its software.

When to Buy

Cloudflare hit what may be a tradeable bottom in late January, falling below $90/share.  This was shortly before it announced earnings. Since then, it’s up nearly 20%, even while the general market has continued to fall.

This relative strength let it buy Area 1 Security, whose business is stopping phishing attacks, for $162 million. The deal expands Cloudflare offerings into protecting e-mail.

This doesn’t mean Cloudflare stock is about to zoom up again. It’s still expensive. The economy could easily dive. Shares in tech stocks fell in pre-market trading Feb. 28 as the reality of the Russia-Ukraine war settled in.

The Bottom Line

I’m showing a loss of about 33% on my Cloudflare purchases. I’m not selling. 

Analysts I trust remain bullish. I wouldn’t put a $245/share price target on it, as some do, unless world events turn around substantially.

But when events do turn, NET stock will turn quickly. I can’t guarantee you’ll see today’s prices for long. You can look at this as a trade and try to get in cheaper on fear. But you may not succeed, because the long-term trends are in Cloudflare favor.

If you’re looking ahead 3-5 years, if you are an investor and want to make time your friend, it’s a good time to buy some NET stock. Nibble on it, and if it falls further nibble some more. Then wait for better days.

On the date of publication, Dana Blankenhorn held a long position in NET. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.