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Fastly Stock’s Bounce Back Could Be Fierce
Stock Analysis & Ideas

Fastly Stock’s Bounce Back Could Be Fierce

Fastly (FSLY) stock has suffered a nearly 60% peak-to-trough plunge this year over the perfect storm of headwinds.

Strong COVID tailwinds enjoyed last year showed signs of fading in the second quarter, with revenues and earnings getting slapped with a considerable downgrade.

Add June’s network outage into the equation, and it’s not a mystery as to why FSLY has been so fast to surrender its gains from last year, punishing those who chased it on the way up.

It’s hard to get behind a name with a few dents in its armor. The fundamentals aren’t nearly as great as they were just a year ago, and shares deserve to correct drastically to the downside.

That said, there’s a chance that the stock has overswung to the downside after many months in free-fall. Despite this, all analysts covering the name have turned their back against Fastly, with zero Buy ratings at the time of writing.

While the upside potential could be sizeable, so too could continued downside in a name that’s becoming tougher to evaluate.

In spite of the recent bounce back in FSLY stock, which was up another 11% on Tuesday, there are too many moving parts to recommend the CDN (content delivery network) company.

There is also a risk that further material downgrades could be in the cards. Given such uncertainties, I am neutral on the stock. (See Analysts’ Top Stocks on TipRanks)

Fastly: Too Soon to Go Bargain Hunting?

Even after a historic meltdown, Fastly stock is anything but cheap at 15.6 times sales. That’s a lofty price to pay for a company that’s firing on all cylinders with considerable momentum, let alone a company with as much baggage as Fastly.

Looking back, it’s now clear that FSLY stock should have never skyrocketed as quickly as it did last year, and that the stock is still fairly priced at best, even after such a remarkable decline.

While only time will tell how bad Fastly’s post-COVID hangover can get, one has to be discouraged by recent margin trends. Gross margins retreated by around 4% year-over-year to 57.6%.

Undoubtedly, the firm had to spend more on its infrastructure capacity, causing losses to swell amid harsher industry conditions.

Undoubtedly, there was not much to get behind in the second quarter. Regardless, Fastly is still a top dog in its corner of the cloud. While there are considerable uncertainties with the delay of new projects, such uncertainties may not necessarily signify anything ominous.

Could delays precede further delays? Possibly, but after such a massive drop, the bar is low such that any positive surprises may stand to be a significant upside needle-mover for FSLY stock.

Regardless, investors looking to time a bottom in Fastly stock should be ready for a long road of volatility, as the company looks to exceed its now drastically lowered expectations.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, FSLY stock comes in as a Hold. Out of seven analyst ratings, there are zero Buy recommendations, six Hold recommendations, and one Sell recommendation.

The average Fastly price target is $36. Analyst price targets range from a low of $32 per share, to a high of $42 per share.

Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.

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