New Trade for May 30th, 2023

Stocks ticked higher this morning after it was announced that the Biden administration had reached a tentative deal with Republican lawmakers on raising the U.S. debt ceiling. The agreement comes just days before the so-called June 5th “X date,” setting an optimistic tone to kick off the holiday-shortened week in trading.   

Our stock recommendation for the day is a mighty mid-cap poised for gains during the second half and beyond, thanks to favorable trends signaling the stability and success of its momentous turnaround.  

Fasty Inc. (FSLY)

Cloud-computing platform provider Fastly has been getting much attention this year, which may be just the beginning. Despite an astonishing 91% increase this year, FSLY’s share price remains significantly (88%) below its October 2020 ATH of $126.58.  

The company has yet to turn a profit. Nevertheless, over the past three years, revenue increased at an average rate of 23% per year, and that’s well above most other pre-profit companies. Interestingly, the share price has fallen an average of 9% each year over the same period. This disconnect between valuation and revenue growth forms the foundation for an intriguing investment, especially for growth-oriented investors.  

Fastly posted solid earnings in early May. A year-over-year gain in new customers evidenced management’s efforts to cultivate the conditions for long-term success. They decreased capital expenditures, which has allowed for enhancements to the company’s technology and business model. Customer acquisition and growth across the platform should be supported as it rolls out more straightforward product packaging and pricing tiers. Based on current free cash flows, the mighty mid-cap company has sufficient cash runway for more than three years. Its debt is well covered by its earnings, and management forecasts a reduction in losses over the next twelve months.  

Strong execution and favorable underlying fundamentals seem likely to continue to support this turnaround story. At less than $15.50 per share, FSLY seems worthy of consideration.  

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