Share prices of edge computing company Fastly(NYSE: FSLY) could rise to $18, according to Bank of America analyst Tal Liani. With the stock trading below $13 today, this price target represents an upside of about 43% over the next 12 months or so.
It's important to note that Liani's optimism has faded a bit. The analyst previously had a $28 price target on the stock.
Fastly is making significant progress but seeing sluggish growth
The BofA analyst pointed to the progress that Fastly has made over the past year as the reason for the maintained buy rating and a price target that's well above the current stock price. The company grew revenue by 17% in 2023, improved its gross margin, and reduced its net losses considerably.
One big problem is that Fastly is growing more slowly than both the edge computing market as a whole and its competitor Cloudflare(NYSE: NET). As Cloudflare innovates at a rapid pace, layering new products on top of its network, Fastly is at risk of being left behind.
Liani recognizes that Fastly faces some headwinds and that the company's recovery may be lumpy. The analyst lowered expectations to compensate for the risk that Fastly's results could come up short in the first half of the year.
Is Fastly stock a buy?
While the BofA analyst remains optimistic about Fastly stock, albeit with a bit less enthusiasm, the company's growth prospects and valuation make the stock a tough sell.
Fastly expects to generate between $580 million and $590 million of revenue in 2024, putting the price-to-sales ratio at roughly 3. The company isn't profitable, and free cash flow was negative last year. While that price-to-sales ratio may look low in the world of cloud stocks, Fastly's expected revenue growth of 15% in 2024 is not particularly impressive. Larger rival Cloudflare expects to grow revenue by 27% this year.
With Fastly stuck in Cloudflare's shadow, the BofA analyst may still be too optimistic about this edge computing stock.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Timothy Green has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America, Cloudflare, and Fastly. The Motley Fool has a disclosure policy.
