Use Recent Weakness in Fastly Stock to Accumulate a Position

Fastly (NYSE:FSLY) has been on a wild ride in 2020. The stock entered the year trading near $20. Fastly stock promptly dumped below $11 in March before absolutely exploding higher once Wall Street realized what it did. 

A magnifying glass zooms in on the Fastly (FSLY) website.
Source: Pavel Kapysh / Shutterstock.com

The company operates a top-of-the-line edge-cloud computing platform. Wielding its Compute@Edge product, Fastly is redefining stellar customer experience. When a company is disruptive, a premium valuation and high growth rate are commonplace in the investment world. 

For those wondering what in the world edge computing is, this is a great quick summary:

Edge computing is a distributed computing paradigm that brings computation and data storage closer to the location where it is needed, to improve response times and save bandwidth.”

It’s no surprise then that Fastly has seen a notable jump in growth amid 2020 due to the novel coronavirus. Whether that’s streaming services, e-commerce sites, delivery companies or other instances where a company is interacting with its customers, Fastly is there improving the experience. 

Building the Future, Today

However, this process and adoption is not overnight. It takes time to build out a new platform, and with Fastly, that is the goal. To build an irreplaceable, vital component to the web that every meaningful company in the world needs to leverage. 

If it can do that, Fastly stock will go from hardly known to a household name — a household name in the investment world at least!

There’s no guarantee that Fastly will succeed in that mission. However, for the time being, it has the fastest horse in the race and one of the healthiest as well. Analysts expect about 45% revenue growth this year and another 31.5% growth in fiscal 2021. 

Personally, I believe that next year’s numbers may be a bit conservative, but even if that’s not the case, $381 million in forecasted revenue for calendar year 2021 is pretty darn good for a company that earned “just” $200 million in 2019. 

It’s easy to get distracted by the month-to-month or even quarter-to-quarter action. However, it’s the multi-year progression investors need to watch.

Two years from now, consensus estimates sit at $490 million. I’d be quite surprised if Fastly wasn’t printing a number north of $500 million by then. Further, I doubt that many of these estimates include Fastly’s recent cybersecurity acquisition of Signal Sciences for $775 million.

As more companies migrate to the edge, the more those companies will focus on vulnerability. With that, Fastly’s new approach — Secure@Edge — will prove to pay dividends down the road. That’s why I think Wall Street continues to discount this company.

With a Dollar-Based Net Expansion Rate (DBNER) of 147%, up from 137% in Q2 2020, it’s clear that Fastly is already seeing strong, additional demand from its existing customers. 

Fastly Stock Has Had a Bumpy Road

At one point, Wall Street did get the Fastly hype. That’s why investors bid the stock up from under $11 at the March low to $136.50 at the October high. However, that’s where the stock ran into trouble. 

Once Fastly had to reduce its revenue outlook — even though it was, quite literally, just a few million dollars mostly due to TikTok’s legal issues here in the U.S. — that’s all it took to take the air out of the stock price. Shares cratered, falling 27% in a single day in mid-October.

That skid landed Fastly stock with nine straight daily losses, and 12 declines in 13 sessions. That included earnings too, which came near the end of that skid. In all, shares declined more than 54% from the October high to the October low. 

But here’s the thing: large drawdowns are just a way of life for early growth companies. Swoons of 30% to 40% are not rare. Even outside of 2020, those swoons have been seen in some of the most well-known tech stocks out there, for companies both big and small. 

Fastly stock falling more than 50% is noteworthy, but it’s hardly the end of the world for a stock that rallied almost 1,200% in seven months and went public in May 2019. For reference, Fastly is still up more than 300% so far this year. 

The fact of the matter is, market-intelligence firm IDC predicts that by 2022, 75% of “data will need analysis and action at the edge.”

It’s possible that Fastly gets disrupted in this space, but I’m betting that it won’t. As a result, I believe Fastly stock is a good buy. The recent volatility is an opportunity, as its long-term trajectory appears solid. 

On the date of publication, Matt McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.

The InvestorPlace Research Staff member responsible for this article had a long position in FSLY. The InvestorPlace Research Staff member did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now 


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