Why Investors Slammed Fastly Stock on Tuesday

Fastly (NYSE: FSLY) has had very little news of its own to impart in recent weeks. On Tuesday, though, its stock made a notable move after an analyst downgraded his recommendation on the company.

On the back of that development, investors eagerly traded out of the company, driving it to close more than 5% lower that day. This was a far steeper fall than the S&P 500 index's 0.9% dip.

No longer a strong buy

The pundit getting notably more bearish was Raymond James's Frank Louthan IV; before the market open, he changed his recommendation on Fastly stock to market perform (hold, in other words) from the previous strong buy.

Pointing out that the shares are nearing his previous $8 price target, Louthan wrote in a new research note that "we believe there are better opportunities for upside elsewhere in our coverage, particularly data centers and larger carriers."

The analyst noted that while Fastly's recent "resettling" of its business and its expanded product lineup are positive developments, it might take several quarters for such efforts to impact the fundamentals. He singled out revenue and free cash flow (FCF) as eventual beneficiaries of that potential improvement.

Pundits are not particularly excited about the future

All in all, analysts tracking Fastly stock are fairly cool on the company's prospects. Collectively, they are expecting no improvement in the company's net loss in its third quarter compared to the year-ago period. Zooming out, the consensus forecast for full-year net loss is only slightly narrower ($0.15 versus $0.17 per share) than the 2023 result. Meanwhile, annual revenue growth for both years should come in below 6%.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fastly. The Motley Fool has a disclosure policy.