Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Fastly Stock Fell Again Today

By Jason Hall – Feb 24, 2020 at 6:02PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Take a poorly received quarterly result and mix it with a global panic, and you get another bad day for Fastly's shares.

What happened

Shares of Fastly (FSLY 5.14%) 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. 

Scales drawn on a chalkboard with risk and reward on each side.

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. 

Jason Hall has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fastly. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Fastly, Inc. Stock Quote
Fastly, Inc.
FSLY
$8.93 (5.14%) $0.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.