Cloudy (NYSE:NET) the stock has produced impressive returns for its investors. Since its IPO in September 2019, it has gained around 420%. However, after its rise to prominence and now, in the midst of a broad sell-off in the tech sector, investors may want to reconsider whether this is a buy.

In my view, the prospects for this cloud computing company hinge on how one weighs the benefits the company offers its customers against a critical headwind for the stock.

Reason to buy #1: competitive advantages

Cloudflare offers its customers cutting-edge IT and network security solutions. Its customizable firewall protects these customers from Distributed Denial of Service (DDoS) attacks, bots, and other types of threats.

On the edge computing side, it operates data centers in more than 250 cities around the world. These include locations in more than 1,000 of the world’s most populous office complexes, giving it a competitive advantage in many key locations.

Plus, it offers simple and affordable plans, a feature that makes it a popular choice for small and medium-sized businesses, which make up more than 99% of all U.S. businesses, according to the Small Business Administration. Although these companies lack the resources of large corporations, the massive size of this market segment speaks to its enormous potential. The company reported more than 132,000 customers at the end of the third quarter, of which only about 1,300 are defined as “large customers”.

Reason to buy #2: Cloudflare’s support for the metaverse

Admittedly, Cloudflare is not a “metaverse stock” in the technical sense. Nonetheless, it will likely play an important role in supporting its growth.

Cloudflare’s network can reach 95% of the world’s population in 50 milliseconds or less. As such, its software-defined networking (SDN) model can better support metaverse applications than more expensive hardware solutions. Additionally, the company’s Zero Trust security can protect networks and support applications such as NFTs or distributed ledgers, empowering the metaverse through a decentralized and private web.

Finally, the value of the metaverse market is expected to grow at a compound annual rate of 43% between 2021 and 2028, according to Emergen Research. According to this forecast, the market size, which was $47.7 billion in 2020, will reach nearly $829 billion by 2028. With Cloudflare’s supporting role, it could claim a significant share of this niche. expanding.

Reason to Buy #3: Massive Revenue Growth

Credit Cloudflare’s feature for helping its revenue grow 52% year over year in the first nine months of 2021 to $463 million. By comparison, operating expenses increased by 41% over the same period.

Nevertheless, interest expense rose from $15 million to $33 million during this period, and the company added $72 million in debt extinguishment losses, which wiped out a profit before tax. Due to an income tax charge of $191 million in the first nine months of 2021, losses for that period were $183 million, compared to $85 million in the period of the previous year.

However, its projected revenue of $648 million for 2021 would represent a 50% year-over-year increase, and analysts predict a 37% increase in revenue in 2022. Although that would technically mean a slowdown in the growth, Cloudfare‘s growth will likely remain robust for some time to come.

The reason to sell: the valuation

Despite all of these positive attributes, the answer to whether Cloudflare stock is a buy now may hinge on valuation. Its stock price has fallen more than 55% since November. Yet, its price to sales ratio is 49. This makes it more expensive than cybersecurity companies like Z-scalewith its price/sales ratio of 45, or edge computing players like Quickly, which has a ratio of 10.

Plus, that multi-priced Cloudflare sale for perfection, a standard the company doesn’t seem willing to meet. With earnings rising at a steady but slowing pace, investors might start to wonder if they want to pay nearly 50 times the sales. Additionally, growth tech stocks have seen a sell-off since November, making investors more likely to question higher valuation multiples.

Is Cloudflare a buy now?

Many investors will avoid Cloudflare stock for now due to its still high valuation. But with its security features, advanced computing capabilities and metaverse applications, the company’s robust revenue growth is expected to continue, perhaps not fast enough to justify its current sales multiple, particularly in the current business environment. While its shareholders may do well in the long term, I wouldn’t be surprised if the stock fell further in the short term.