130114_DL_leongUnless you have been living in a bunker over the past few years with no access to the Internet, you likely know of the increasing significance of cloud computing in what I consider the next phase of the technology advancement, based on my stock analysis.

Cloud computing is simply a way for companies to store applications, solutions, or data, and allows users to easily access these materials from anywhere.

The growth estimates are staggering. My stock analysis indicates that we are seeing cloud start-ups springing up everywhere, almost as rapidly as the time it takes to register a company name. Simply the use of the term “cloud” in a company’s name or business description has the ability to drive buyers to the stock, according to my stock analysis.

But as my stock analysis suggests, while the estimates of the potential size of the cloud computing market vary, one thing that’s for sure is that the size of the market worldwide will be massive. In fact, the value of the cloud market could be a staggering $270 billion by 2020, according to Market Research Media. (Source: “Cloud Computing Market Size – Facts And Trends,” CloudTweaks web site, July 7, 2012, last accessed January 10, 2014.) However, in the report, Forrester predicts the cloud market will be valued at around just $55.0 billion this year and will reach $241 billion by 2020. That’s massive growth, and while these are only estimates, my stock analysis notes that the potential is nonetheless enormous, so you want to have some exposure to the cloud computing market.

And while there are some major players in cloud services, such as salesforce.com, inc. (NYSE/CRM) and ServiceNow, Inc. (NYSE/NOW), a smaller and rapidly growing cloud company to keep your eyes on is Sunnyvale, California-based 8×8, Inc. (NASDAQ/EGHT, $10.94; market cap: $800 million).

8×8 was established in 1987. The company develops patented software technologies that help consumers and businesses find affordable, high-quality voice solutions, including integrated messaging and video. The company also owns cloud contact center service provider Contactual, Inc. and cloud hosting provider Zerigo, Inc., allowing 8×8 to increase its exposure to the cloud computing market.

The key competitors for 8×8 are the major communications companies, but according to my stock analysis, the company’s focus on small companies that demand cheaper solutions is attractive.

Clients range from the home office to small- and medium-sized businesses. The company had 34,674 business customers as of September 30, 2013.

Chart courtesy of www.StockCharts.com

While the stock has already delivered some excellent gains to shareholders—up 48.52% over the past 52 weeks, versus a 24.82% advance by the S&P 500 during the same time—my stock analysis indicates that there is still longer-term price appreciation potential. The stock currently trades at 74 times its fiscal 2015 earnings, so the stock price is top-heavy, based on my stock analysis. I would suggest that investors wait to buy on weakness.

An alternative investment strategy may be to sell put options on 8×8 at a lower strike price that allows you to buy the stock at a lower preset price. At the same time, you can keep the premium earned for writing the put in case the stock doesn’t fall to the strike price.

This article Why This Software Tech Stock Is So Attractive was originally published at Daily Gains Letter