It’s what the price of growth can look like. And when it comes to Fastly (NYSE:FSLY), that means looking past today’s cloudy uncertainty and towards fairer skies. How? By using a well-placed and practical collar strategy in FSLY stock.
Are you looking for the next Amazon (NASDAQ:AMZN) or Microsoft (NASDAQ:MSFT)? Who wouldn’t, right? They’re among the best companies out there. They’re also trillion-dollar capitalization power houses whose resilience have been key to the tech-heavy Nasdaq Composite’s jaw-dropping performance in 2020 amid the novel coronavirus pandemic.
With that in mind, this brings us to shares of FSLY stock.
Fastly is an up-and-coming growth play and larger mid-capitalization stock 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.
The company’s services are increasingly important in today’s bursting at the seam’s digital world. Moreover, FSLY stock’s recent earnings release was certain proof of opportunity being well-executed.
Fastly Earnings at a Glance
In a nutshell, Fastly checked off more than a few of the boxes growth investors demand when considering an investment. Massive customer growth, better-than-expected earnings were highlights of their second-quarter report — supporting a FSLY stock purchase. In fact, Fastly earnings yielded positive earnings per share for the first time and surging revenues that topped Wall Street estimates.
Yet, shares of FSLY stock cratered nearly 18% in the release’s immediate aftermath, and an additional 20% over the following week.
So, what gives?
The San Francisco-based outfit managed to throw a wrench or two at the high-flying stock’s bullish narrative. Specifically, the company offered third quarter revenue guidance whose midpoint came in just narrowly above analyst expectations. And if accurate, sales growth would also be mostly flat sequentially. They are problems — or at a minimum, actionable, perceived issues. However, there’s more, too.
Adding fuel to that uncertainty, Fastly revealed its biggest customer, at 12% of its revenues, is TikTok. Unfortunately, though, the China-based social media sensation has been in the news for all the wrong reasons. The company has come under fire as a national security threat whose services — funny videos — President Donald Trump’s administration has vowed to ban unless Microsoft or another interested suitor like Oracle (NYSE:ORCL) are able to buy its U.S. operations.
Stay tuned, I suppose.
FSLY Stock Weekly Price Chart
Moreover, for growth stocks of Fastly’s caliber, bullish sentiment fueled by momentum can be quick to turn. It happens regularly, and the common phenomenon also had even greater cause to show itself following FSLY stock’s earnings release.
Bottom-line, some of Fastly investors were sitting on massive open profits upwards of 1,000% in just five months as Fastly rocketed off its low hit during March’s historic bear market.
That said, it’s market-leading, relative strength we’d all like a piece of. However, the report offered evidence of chinks in the company’s ability to continue growing at the same pace. In the process, bullish expectations and the stock’s fantastic gains became riskier to justify.
However, the good news is that price declines of this size can often act as a healthy, technical reset for shares. And the thing is, short-term worries and bearish sentiment have a way of simply disappearing. If it didn’t work that way, there’d never be an opportunity.
In the case of FSLY stock’s slightly deep 38% correction, a bubble of enthusiasm and fearless confidence which took shares up more than 50% in the days leading up the report, was punctured. Bullishly, and with Thursday’s weekly confirmation of a meaningful low in place, the stock action lays the groundwork for a stronger platform — which can lead to even higher prices to follow.
But will it? Let’s see what happens.
Bottom Line on FSLY Stock
To be clear, there are no guarantees past performance will lead to continued future returns worthy of landing Fastly in the same conversation as an Amazon, Microsoft or Apple (NASDAQ:AAPL). And I doubt that will ever happen. Still, though, I like what I’m seeing off and on the price chart these days to be upbeat on FSLY stock in the short to intermediate-term.
For like-minded investors looking to guard against a corrective low turning more painful and okay with making a pragmatic, but always adaptable compromise on the upside, a collar strategy looks like a smart choice. One favored combination on our radar right now is the October $80 put / $115 call collar for up to $91.25 with Fastly changing hands at $88.
The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris Tyler on Twitter @Options_CAT and StockTwits. Chris is a former floor-based, derivatives market maker on the American and Pacific exchanges. Investment accounts under Mr. Tyler’s management do not own any securities mentioned in this article.