Please ensure Javascript is enabled for purposes of website accessibility

Why Fastly Stock Is Crumbling Today

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

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

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.

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 Stock Quote
$8.72 (1.99%) $0.17

*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
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

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.