Please ensure Javascript is enabled for purposes of website accessibility

Why Fastly Stock Was Climbing Today

By Jeremy Bowman - May 11, 2021 at 12:49PM

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

Shares of the edge-computing company rose after an analyst said the stock had been oversold.

What happened

Shares of Fastly (FSLY 5.54%) were climbing Tuesday as the edge-computing specialist rode a broader rebound in the high-growth tech sector, and as one analyst said the stock's post-earnings sell-off was overdone.

As a result, shares were up by 8.9% as of 1:44 p.m. EDT.

The Fastly logo on a red background

Image source: Fastly.

So what

After tech stocks broadly plunged Monday on inflation concerns and then opened Tuesday morning down sharply, the sector rebounded as investors took advantage of discounted prices.

Fastly shares tumbled last week after its second-quarter guidance was weaker than the market had been hoping for.

DA Davidson analyst Rishi Jaluria lowered his price target on the stock from $105 to $60, but maintained a buy rating on it. He acknowledged that slowing growth in Q1 and guidance calling for sequentially flat results in Q2 was disappointing, but in spite of that, he said that Fastly's share price decline had gone too far.

While that was hardly a ringing endorsement for Fastly, it seemed to be enough to push the stock higher along with the broader shift in market sentiment. After all, Jaluria's price target still predicts a roughly 33% upside for the stock.

Now what

Fastly's first-quarter report sparked a wave of doubts among investors, with slowing organic growth and guidance that was below expectations. However, Fastly raised its guidance for all of 2021. Management indicated that the second quarter should be the trough in its growth rate due to a difficult comparison to Q2 2020. Also, the second quarter is normally a seasonally slow one for the company.

Given that, traders may have overreacted last week when they sent Fastly's shares down by 27% on the heels of the report. It now trades at a price-to-sales ratio of less than 15. While that isn't cheap, it is a much lower ratio than it was trading at just a few months ago, and a decent valuation for a company that still has disruptive potential.

Jeremy Bowman owns shares of Fastly. 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
$12.19 (5.54%) $0.64

*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
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/14/2022.

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.