Why Fastly's Stock Dropped Today?
June 29, 2020 by InvestorDestination Team
Despite all major indexes being green, shares of edge cloud platform provider Fastly Inc (NYSE: FSLY) declined almost 10% today.
COVD-19 triggered stay-at-home economy ignited investors' enthusiasm for so-called work-from-home stocks. For the last two months, the stock continued to set new all-time highs nearly every day and has quadrupled in value. Finally, the market might be putting a brake on excitement over this stock.
In the first quarter, the company's revenue grew by 38%, and it generated a net loss of 12 million. It raised its full-year guidance, and now it expects full-year revenue between 280 to 290 million. However, the company has a market cap of around 9 billion, and its price-to-sales ratio is more than 30. The company has never been profitable and didn't generate a positive operating cash flow. As the revenue is growing, its margins are improving.
Whether this rally is sustainable or not depends on whether its valuation is in alignment with its fundamentals.
It is a relatively young company, and a year ago, it became a public company. At different times, the market becomes overly enthusiastic about different sectors. Currently, despite the high unemployment rate, economic uncertainties, and pandemic, the market is rallying. Investors are too excited about any stock remotely connected to working-from-home. Right now, investors don't seem to care about fundamentals. But eventually, the market will correct itself, and fundamentals will matter. Fastly is growing its subscription and revenue at a moderate level compared to other fast-growing software companies.
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