What’s the price of growth look like? In a market made up of stocks, Fastly (NYSE:FSLY) is on the leaderboard right now. In that promising position, a solid price drive in FSLY stock followed by a common ‘slice’ in valuation may just yet benefit tomorrow’s shareholders. Let me explain.
Last week wasn’t a great one for the tech-heavy Nasdaq Composite, as the market’s leading index shed 1.33% for the five-day period. Constituent trillion-dollar club member Apple (NASDAQ:AAPL) lost an even larger 3.85%. But peer Amazon (NASDAQ:AMZN) finished up 1.58%, helping minimize index losses after the stock’s hefty 7.44% devaluation a week earlier.
Blame it on what you will. Surging novel coronavirus cases in a handful of American cities and record-breaking death toll. Escalating tensions between China and the U.S. A contentious Presidential election now less than 100 days out, or Intel’s (NASDAQ:INTC) company-specific warning. Or was it something else?
Fastly Is Up-and-Coming
With Nasdaq up about 60% from its March Covid-19 bottom and sporting year-to-date gains of around 17%, profit-taking for the sake of taking profits has merit as well.
Plain and simple markets correct. Following larger rallies, not to mention today’s record-breaking stretch, a decline is healthy. It’s an inescapable feature of investing. That goes for even the most dearly held stocks and it should be welcomed by investors. This brings us to shares of Fastly.
Fastly is an up-and-coming tech growth play and larger mid-capitalization stock. Specifically, Fastly is a $8 billion company which “operates an ‘edge cloud’ platform for processing, serving, and securing its customers’ applications. Edge cloud is part of Infrastructure as a Service, or IaaS, which allows developers to build, secure, and deliver digital experiences at the edge of the internet,” according to the company’s description on Yahoo Finance.
As the world continues to explode digitally, FSLY’s cloud services are increasingly important. As InvestorPlace’s Chris Lau explains, Fastly is showing exciting growth as a leader in this space.
Could FSLY be the next Netflix (NASDAQ:NFLX) or Amazon? I’m not holding my breath. As another one of my colleagues, Mark Hake, notes, Fastly still lacks profits and positive free cash flow. I’m also not so upbeat Fastly’s business is the kind which transforms the market landscape, as well as portfolios long-term. That’s not to say I wouldn’t be a buyer of Fastly.
Flawed fundamentals are quite common during the initial growth phase of a company. Stocks of this caliber will also typically look expensive while generating massive returns long before shares ever appear more palatable to many of their detractors. Lastly, a portfolio holding doesn’t have to necessarily be held indefinitely. As the Fastly price chart can attest, sometimes it’s best that way.
FSLY Stock Daily Price Chart
Source: Charts by TradingView
If you’re going to buy into a company with some chinks in its armor like FSLY, buying a pullback can make sense. Appreciably, investors are buying the good part of the stock’s growth story on temporary weakness at a discount to hyped up momentum. Can the ‘slice’ off its highs turn into another dazzling long position and new highs to come?
Technically and since breaking out of a massive saucer in May, Fastly has established a routine corrective base of 28% in depth from its recent high. The common price action could be an important first-stage base which is generally viewed as being more durable. And that would be unequivocally bullish.
Now and during Monday’s session, Fastly has confirmed a daily chart high-level double bottom pattern within the potential corrective base. But I wouldn’t be a buyer just yet. My advice today on Fastly is to wait for stochastics to generate a crossover buy signal out of oversold territory before a purchase is made. The entry also rests on the pattern low holding.
Bottom-line, healthy-looking corrections can always turn much uglier. But should the necessary confirmation from stochastics come into play and with earnings a week out, I’d also stress investors use FSLY stock’s options market to hedge exposure off and on the price chart more effectively.
Investment accounts under Christopher Tyler’s management do not own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.