Please ensure Javascript is enabled for purposes of website accessibility

Why Fastly Stock Fell on Monday

By Daniel Sparks – Jul 13, 2020 at 3:44PM

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

The growth stock is taking a breather after a monstrous run-up.

What happened

Shares of edge computing company Fastly (FSLY -1.49%) tumbled on Monday, declining about 14% by 3:35 p.m. EDT.

The growth stock's pullback follows its incredible run in recent months. Shares, therefore, may be taking a breather -- particularly after several analysts expressed concerns about the stock's valuation last week.

A diagram showing three laptops connected to the cloud

Image source: Getty Images.

So what

After surging beyond $100 per share last week, shares of Fastly have declined for two trading days in a row. But the stock is still notably up more than 300% year to date. A pullback as some investors take their profits seems rather normal after such strong price appreciation.

Last week, Craig-Hallum analyst Jeff Van Rhee gave Fastly a $100 12-month price target, but lowered his rating for the stock from buy to hold because of the stock's frothy valuation. Similarly, Bank of America analyst Tal Liani boosted his price target for the stock from $50 to $90 but changed his rating on the stock from buy to underperform, citing the stock's high price-to-forward sales multiple. Liani remained bullish on the company's fundamentals but said the stock's valuation last week assumed "near-perfect execution." 

Now what

Expectations are high going into Fastly's second-quarter earnings report. Management guided for revenue to jump about 57% year over year on the heels of increased internet traffic and continued customer expansion on its platform. This compares to 38% growth in the first quarter of 2020.

Fastly reports its second-quarter results after market close on Aug. 5.

Daniel Sparks owns shares of Fastly. The Motley Fool owns shares of and recommends Fastly. The Motley Fool has a disclosure policy.

Premium Investing Services

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