Further weakness as Fastly (NYSE:FSLY) drops 6.0% this week, taking three-year losses to 71%

While it may not be enough for some shareholders, we think it is good to see the Fastly, Inc. (NYSE:FSLY) share price up 24% in a single quarter. But only the myopic could ignore the astounding decline over three years. In that time the share price has melted like a snowball in the desert, down 71%. So it sure is nice to see a bit of an improvement. Of course the real question is whether the business can sustain a turnaround.

With the stock having lost 6.0% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

Check out our latest analysis for Fastly

Fastly isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last three years, Fastly saw its revenue grow by 16% per year, compound. That's a pretty good rate of top-line growth. So it's hard to believe the share price decline of 20% per year is due to the revenue. It could be that the losses were much larger than expected. This is exactly why investors need to diversify - even when a loss making company grows revenue, it can fail to deliver for shareholders.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Fastly is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Fastly will earn in the future (free analyst consensus estimates)

A Different Perspective

Investors in Fastly had a tough year, with a total loss of 50%, against a market gain of about 23%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Fastly better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Fastly , and understanding them should be part of your investment process.

But note: Fastly may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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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.