Once the most-hyped stock on Twitter, Fastly appears to be making big moves again, but this cloud business isn’t for everyone.
It could be that it’s the final day of the week and I’m tired, but I feel like I’ve written this exact story before:
- Fastly dips.
- Fintwit and Reddit go nuts.
- Fastly soars.
- The cycle repeats.
Is it just me?
Anyway, edge computing and cloud specialist Fastly (NYSE: FSLY) is on the rise once more, having fallen 30% from its all-time highs of last October. The jump comes following an Oppenheimer rating upgrade, which expects Fastly to beat the market in 2021 and set a $125 price target.
One glaring issue still remains though…
“Who cares! Should I buy Fastly stock or not?”
We’re getting to that!
But first, the issue: no matter what angle you look at it from, Fastly is ridiculously overpriced!
Let’s look at the facts:
After growing 335% in 2020, the company is flashing negatives across the board, including earnings, free cash flows, and EBITDA. Even with the companies admittedly impressive $267 million in revenue over the last year, it is still showing a migraine-inducing price-to-sales ratio of 42 times trailing revenue As a high-flying growth stock, Fastly’s market value is tied closely with its revenue growth and margins, which have been mixed. Though sales rose 42% in its last earnings report, this was still far below analyst expectations of closer to 50%, while its margins have been widening, sitting at -21% by Q3 last year.
Now, that’s not to say that Fastly doesn’t still have a lot of potential. Its continued push into edge computing via its ‘Compute@edge’ service is promising (as you’ll see from the graph below), and it looks like it could be getting its biggest customer back in TikTok. The loss of TikTok was highly contingent on the Trump administration banning the platform in the U.S — which never happened — but with Biden now in office, there is no barrier (yet) to TikTok getting back on the Fastly train.
However, even with an analyst upgrade, investors need to be careful about getting caught up in the Fintwit craze. Situations like this, where the internet bands together to drive a stock higher tend to have repercussions, as we saw when Fastly plummeted back in October. Before latching on to the latest Fastly mass-buy, it is important to look at the company’s fundamentals.
This lesson can apply to any number of stocks that have taken the online forums by storm in the past year, be it Fastly, DraftKings, or in an extremely unfortunate case, Nikola Motors.
If you’re thinking about jumping on the Fastly bandwagon this morning following its resurgence, just do your own research first. Perhaps you’ll still like what you see!
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.