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Bear of the Day: Fastly (FSLY)

·2 min read
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  • FSLY

Fastly FSLY is a $5 billion provider of infrastructure software that powers cloud computing, image optimization, security, edge computer technology and broadband streaming solutions.

The company was an emerging cloud darling last year as demand for its services greatly expanded during the pandemic-driven work-from-home epidemic.

But EPS estimates just got slashed again in the last week following their Q2 earnings report on August 4, with the 2021 profit consensus cratering 47.6% from a loss of 42 cents to -62 cents, representing a -244% annual wipeout.

And next year's outlook imploded a whopping 85% from a loss of 26 cents to -48 cents.

As the profit picture has drastically deteriorated this year for FSLY, so has the stock price. Here's what my colleague Jeremy Mullin wrote in late February when shares were still trading near $80 after a post-earnings plummet from $120...

2020 was a great year for investors, with the stock running from $20-$136 over the course of five months. However, the stock got ahead of itself and has become very volatile over the last few months on valuation concerns.

Recent earnings added more questions and the stock has fallen over 30% in February. Now the bulls are questioning their next move as the stock falls to the 200-day moving average.  


Revenues Grow, But Barely Fast Enough

As Jeremy pointed out in February, that drop into the 200-day moving average was a decision point for lots of investors and traders. Some must have known that "things to come" were not going to get better as the stock fell below $60 on the Q1 report in early May and just kept going to try to find bottom below $40 since then.

There seemed to be something of a capitulation-type move after last week's report with shares plunging to new 52-week lows under $35 on massive volume of 50 million shares, and then recovering $40 as if the worst might be discounted.

So I wouldn't blame you if you started to nibble under $40. I'm thinking about it myself with revenue growth still intact at 19% and looking to eclipse $400 million next year for a 12X forward sales multiple.

But if that growth slips any further, the company is not worth $5 billion now. So it may be best to wait until the estimates stop going down and start heading back up.

The Zacks Rank will let you know.


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