Assessing Fastly (FSLY) Valuation After A Sharp Share Price Rebound

Fastly’s recent share move and business backdrop

Fastly (FSLY) has drawn fresh attention after a strong month for the stock, with the price up about 75%, prompting investors to look more closely at how its edge cloud and security business is positioned.

See our latest analysis for Fastly.

That recent 74.71% 1 month share price return and 76.25% year to date share price return, alongside a 166.86% 1 year total shareholder return but a weaker 5 year total shareholder return of 72.58%, suggests momentum has been strong recently after a tough longer stretch.

If Fastly’s move has you looking at other growth stories around digital infrastructure, you might want to scan our list of 33 AI infrastructure stocks as a starting point. It can help you spot companies exposed to similar themes.

With Fastly shares up sharply and trading close to some valuation estimates, the key question now is whether the recent strength still leaves room for upside, or if the market is already pricing in future growth.

Most Popular Narrative: 72% Overvalued

Fastly’s last close at $17.96 sits well above the most followed narrative fair value of $10.42, which is based on a 9.69% discount rate and detailed long term assumptions about revenue, margins, and future valuation multiples.

The analysts have a consensus price target of $7.667 for Fastly based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $10.0, and the most bearish reporting a price target of just $6.0.

Read the complete narrative.

Want to see what has to happen for that higher fair value to make sense? The narrative leans heavily on rising margins and steady revenue growth, along with a richer future earnings multiple. Curious how those pieces fit together and what they imply for Fastly’s long term earnings power?

Result: Fair Value of $10.42 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, the story could change quickly if pricing pressure in Fastly’s core CDN offering deepens or if any large customer cuts back usage more sharply than expected.

Find out about the key risks to this Fastly narrative.

Another View: Cash Flows Tell a Different Story

While the most followed narrative sees Fastly as overvalued at its recent $17.96 close versus a $10.42 fair value, our DCF model points in a different direction. On those cash flow assumptions, the shares sit about 1.4% below the $18.21 estimate, which suggests a much tighter valuation band. So which yardstick do you trust more when the gap is this small?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Fastly for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 54 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Mixed signals so far, right? With both risks and rewards on the table, it makes sense to look at the detail yourself and move quickly. You can weigh those trade offs directly by checking the 2 key rewards and 3 important warning signs.

Looking for more investment ideas?

If Fastly’s setup has you thinking bigger, do not stop here. The screener is built to surface ideas you might wish you had found earlier.

• Target resilient compounding potential with our list of 54 high quality undervalued stocks that pair fundamentals with a price that may appeal to long term investors.
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• Get a head start on tomorrow’s potential standouts by reviewing the screener containing 24 high quality undiscovered gems that many investors may not be watching yet.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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