Shares of Fastly (FSLY -6.04%) rose 25.2% in January, according to data from S&P Global Market Intelligence. For the most part, the content delivery and edge computing company's surge hinged on a single rosy analyst report.
Analyst firm Oppenheimer got the party started when it upgraded the stock from perform to outperform, setting a price target of $125 per share. Analyst Tim Horan said his channel checks showed record-high network traffic and high interest in the company's latest edge computing services. In Horan's view, this stock deserves to trade at price-to-book ratios on the same level as sector rival Cloudflare (NET -5.77%), leaving room for a 50% gain before reaching that parity. Fastly's stock gained more than 7% on Jan. 21, kicking off a mini-rally that carried the stock higher for the remainder of the month.
The company is set to report fourth-quarter results on Feb. 17. That update will either confirm or debunk Horan's analysis. Fastly's shares have now gained 430% in 52 weeks. The company is not profitable yet and the stock trades at a lofty 47 times trailing sales with 16% of its shares sold short. That's a classic setup for high-growth stocks whose market value is based directly on the ability to produce impressive top-line growth. The high short interest and rich valuation set Fastly up for heavy volatility around the next earnings report, and the stock could fall even if the revenue jump totally shocks the Street.
If that happens, I'll be ready to dig in with a second helping of this innovative networking expert. This is one of those long-term investments where you really should shake off the short-term noise and buy on the dips.