Edge computing specialist Fastly (FSLY -2.14%) is set to report results for its fourth quarter of 2022 after market close on Wednesday. Heading into the report, at least one analyst thinks shares are a strong buy. Shares of the tech company soared more than 30% at one point on Monday, following an analyst's move to increase his 12-month price target for the stock by more than 50%.
Here's a look at why the analyst is bullish on the stock, as well as some thoughts on whether shares may be worth buying before the company's earnings report on Wednesday.
The path to $16
Bank of America analyst Tal Liani upgraded his rating on the growth stock from "underperform" to "buy" on Monday morning. Additionally, the analyst increased his 12-month price target on the stock from $10.50 to $16.00.
Liani's bullish view is largely due to his confidence in the company's recent leadership transition, moves the company has made to create more focus in its business, and an expectation for revenue growth to potentially reaccelerate and profit margins to expand.
Following a period of Fastly's revenue growth rates slowing dramatically, the company announced in the spring of last year that it was initiating a leadership transition. By August, the company had identified a replacement: Todd Nightingale, formerly leading business strategy and development for Cisco's networking portfolio. The new CEO's official start date was Sept. 1, 2022.
"I'm confident in Todd's ability to lead the company with the rigor and energy needed to elevate Fastly to its next level of extraordinary technology and product growth, including a strong go-to-market motion and operational strengths," said Fastly founder and chief architect Artur Bergman in a press release about the leadership transition.
Liani did say in his note to investors this week that there is some uncertainty around Fastly's near-term business prospects. Perhaps the analyst thinks it may take some time for the new CEO's impact to be realized.
Accelerating growth
Fastly's top-line growth is already accelerating. Third-quarter revenue increased 25% year over year, up from 21% growth in the second quarter of 2022. Looking to Q4, management guided for another robust year-over-year and sequential bump in revenue. The midpoint of the company's guidance range for the period implied 17% year-over-year growth and 5% sequential growth.
"Our portfolio expansion strategy is working, and we will be focusing our efforts on accelerating our cross-selling motion to drive growth into 2023," said Nightingale in the company's third-quarter earnings release on Nov. 2.
So is Fastly a buy?
Given one analyst's fresh and upbeat take on the stock and the company's accelerating revenue growth, should investors buy the stock ahead of Fastly's earnings report on Wednesday? While it's impossible to know how the stock will trade following the stock's quarterly update, investors shouldn't feel like they need to rush to buy shares.
While the company is making some important progress, it might be wise for investors to wait for management to demonstrate meaningful progress toward profitability first. Fastly's loss per share widened in Q3, coming in at a loss of $0.52. This compares to a loss of $0.48 in the year-ago period.
For investors to take Fastly seriously, the company will need to start moving closer to breakeven. When the company's loss per share is moving in the right direction, Fastly's business model will look like a more viable long-term investment.
