What happened
Shares of Fastly (FSLY -3.23%) fell 10.6% on Monday, joining the rest of the stock market as it sold off on news that the coronavirus has spread in several countries outside of China. Both the S&P 500 and Dow Jones Industrials lost more than 3% of their value today, one of the worst market days in the past year.
So what
Today's market decline is chiefly a product of this weekend's news that COVID-19, already wreaking havoc in China, has started to spread in more countries. According to reports, Japan, South Korea, Iran, and Italy all have seen the number of coronavirus cases increase sharply in the past few days.
Image source: Getty Images.
China's economy is already expected to take a big hit from its efforts to contain the spread of COVID-19, and if some of these other countries experience similar slowdowns in their economic output as a result of the spread or efforts to contain it, the global economy could take a serious hit.
In addition to the macroeconomic impact of COVID-19, Fastly is likely also still dealing with investors reacting to its recent earnings report on Friday. The company's shares fell 7% after the fourth-quarter report came out, including news that the company's current CEO, Artur Bergman, was stepping down to be replaced by executive Joshua Bixby. In short, Fastly is paying the price for being an unprofitable high-growth stock in a market that's seeing investors flee stocks they view as risky.
Now what
It's very likely that much of today's selling is a combination of piling on from Friday's news, along with a heavy dose of panic selling as investors try to limit their losses if we see a protracted market downturn. And we could see selling intensify, particularly if the economic impact of COVID-19 is larger than expected.
However, panic-selling almost always turns out to be a mistake, particularly if it causes you to move to the sidelines and then never reinvest. For most of us, the better step is to sit on our hands during these sell-offs, and hold for the long term, where the best returns are made.
I think that's especially true for a company like Fastly right now. The company does have some questions, and is still working toward profitability, but it grew revenue more than 40% last quarter, and continues to see very high demand for its services. For investors willing to hold through what is likely to remain a volatile future, today's price is about 15% below the 2019 IPO price, and looks like an excellent entry point to me.
