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Why Fastly Stock Is Crumbling Today

By Timothy Green – Aug 31, 2020 at 12:18PM

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An analyst price target bump didn't matter.

What happened

Shares of edge computing company Fastly (FSLY 1.99%) are slumping today, down around 5% as of 11:30 a.m. EDT. The decline came despite an analyst price target bump following a recently announced acquisition.

So what

Analysts at Credit Suisse boosted Fastly's price target from $100 to $110 on Monday, a move that was driven by the company's announced acquisition of cybersecurity specialist Signal Sciences. Fastly will pay $775 million for Signal Sciences, comprised of $200 million in cash and $575 million in stock.

A cloud.

Image source: Getty Images.

The price tag of the deal isn't all that big relative to Fastly's market value -- the company is worth around $9.4 billion. But it is large relative to its revenue: Fastly generated revenue of $75 million in the second quarter of 2020.

Credit Suisse sees the deal boosting Fastly's edge security capabilities, differentiating it from the competition.

Now what

The price target bump wasn't enough to boost shares of Fastly, and valuation could be one reason. Fastly stock has soared this year, up roughly 350% year to date. Based on its second-quarter revenue, the stock trades for a price-to-sales multiple in excess of 30.

Investors have been piling into stocks believed to be well positioned for the pandemic and the post-pandemic world. Fastly is one of them, although the enthusiasm appears to have faded a bit today.

Timothy Green 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.

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