New Trade for June 29th, 2023

Stocks ticked higher this morning as the market approached the finish line of Q2 and the year’s first half. Stock performance in the first half has been strong, with tech shares taking the lead. The Nasdaq has gained nearly 30% over the past six months for its best first half in 4 decades. Meanwhile, the S&P 500 has increased 14%, and the Dow has risen 2% year-to-date.  

Our stock recommendation for the day is a mighty mid-cap that’s well 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 a lot of attention this year, and this 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. 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. Management’s efforts to cultivate the conditions for long-term success were evidenced by a year-over-year gain in new customers and decreased capital expenditures, which has allowed for enhancements to the company’s technology and its business model. As it rolls out more straightforward product packaging and pricing tiers, customer acquisition and growth across the platform should be supported. Based on current free cash flows, the mighty mid-cap company has a 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 $16 per share, FSLY seems worthy of consideration.

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