Edge-computing services provider Fastly (NYSE:FSLY) was a darling of the tech sector for a while in 2020. No company can be a market favorite forever, though, and eventually gravity took hold of FSLY stock.
Is that terrible news for prospective investors of FSLY stock? Not at all. In fact, I’ve given FSLY stock a “B” rating and a buy recommendation in my Portfolio Grader. Lower prices are a gift to stock traders as long as there’s nothing terrible going on with the company on a fundamental level.
That’s when tremendous opportunities happen, as a mismatch between the true value of a company and the trajectory of a stock should eventually be resolved. This is exactly what could happen with FSLY stock in the near future, as it’s currently trading at a discount.
Just be aware that FSLY stock is a fast mover. If you’re going to dip into it, be prepared for some daily price moves of 4%, 5% or even more. With that note of caution in mind, let’s take a closer look at this potential tech-market runner.
FSLY Stock at a Glance
You might not usually consider it a good sign when a stock drops quickly. Yet, in the case of FSLY stock, a quick drop has proved to be a prime setup for a spectacular recovery.
I’m referring to FSLY’s share-price descent in March as the novel coronavirus crisis took hold of the stock market. It might have felt like the world was falling apart when FSLY stock tumbled from $22 to its 52-week low of $10.63.
But then, investors with a strong stomach were handsomely rewarded if they held onto their FSLY shares. By Oct. 13, FSLY stock managed to reach an astounding 52-week high price of $136.50.
Chasing FSLY stock at that price wasn’t a great strategy, though, as the share price then tumbled to $63 and change. As of mid-November, the share price appears to be trading in a range between $70 and $80.
So, what happened in mid-October that caused the FSLY stock price to drop so hard? And was the event so terrible that it warranted a share-price beatdown of this magnitude?
Lowered Guidance
In October, when Fastly lowered its fiscal guidance for the company’s third quarter, the trading community was not in a forgiving mood.
The previously projected quarterly revenue range had been $73.5 million to $75.5 million. After the adjustment, the new expected range would be $70 million to $71 million.
As a trader, it’s interesting to witness human psychology in action. Disappointment can take hold of the pool of investors, causing them to beat a stock price down mercilessly in the short term.
Eventually, they’ll often come to their senses and realize that the drawdown was overdone. This could easily happen with FSLY stock. Just consider the fact that at the midpoint of Fastly’s new third-quarter guidance range, revenue would still grow by an impressive 41% on a year-over-year basis.
Weighing the TikTok Issue
So, the new revenue guidance range doesn’t appear to be a valid excuse to dump one’s FSLY shares. But what about the issue surrounding Fastly’s biggest customer, ByteDance?
As you may already know, ByteDance is a Chinese company that owns social media platform TikTok. Also, you might be aware that President Donald Trump’s administration cracked down on TikTok and other Chinese apps due to perceived security-related concerns.
That crackdown might not be a factor in 2021, as there will likely be a change in the White House. Moreover, Nov. 12 has already come and gone. That date was President Trump’s deadline for ByteDance to “divest any tangible or intangible assets or property, wherever located, used to enable or support ByteDance’s operation of the TikTok application in the United States.”
For the time being, at least, it appears that TikTok is functioning as usual and there should be no imminent threat to Fastly’s biggest client.
The Takeaway
Given the sharp mid-October decline, it’s entirely possible that the downturn in FSLY stock was an overreaction.
If so, then enterprising traders can take advantage of the short-term mispricing and own FSLY shares at a discount to their fair value.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.
