Long-established in the Software industry, Fastly Inc (FSLY, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a decline of 2.44%, juxtaposed with a three-month change of 21.16%. Fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Fastly Inc.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 5/10
- Profitability rank: 3/10
- Growth rank: 6/10
- GF Value rank: 7/10
- Momentum rank: 3/10
Based on the above method, GuruFocus assigned Fastly Inc the GF Score of 68 out of 100, which signals poor future outperformance potential.
Fastly Inc: A Snapshot of Its Business
Fastly Inc, with a market cap of $2.82 billion, operates a content delivery network, which is necessary for entities to provide faster and more reliable online content. Fastly's strategy differs from traditional CDNs, which focus on locating servers in as many locations as possible to store copies of files that consumers most use. Fastly is in far fewer sites than traditional CDNs, but it houses servers in the most network-dense data centers. Instead of simply storing static content, it allows its customers to program on its platform, enabling edge computing and better service of the more dynamic content that was traditionally not well served by CDNs. Fastly gears its service to the largest, most sophisticated enterprises rather than small companies and generated nearly three quarters of its revenue in the United States in 2022.
Financial Strength Breakdown
Fastly Inc's financial strength indicators present some concerning insights about the company's balance sheet health. Fastly Inc has an interest coverage ratio of 0, which positions it worse than 0% of 1550 companies in the Software industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 2.24, which is below the safe threshold of 2.99. Although this does not imply immediate danger of financial distress, the stock may face some financial struggles if the Altman Z-score drops below 1.81.
Additionally, the company's low cash-to-debt ratio at 0.69 indicates a struggle in handling existing debt levels.
Profitability Breakdown
Fastly Inc's low Profitability rank can also raise warning signals. Fastly Inc's Operating Margin has declined over the past five years ((-367,391.00%)), as shown by the following data: 2018: -20.16; 2019: -23.22; 2020: -36.86; 2021: -61.81; 2022: -56.90; .
Additionally, Fastly Inc's Gross Margin has also declined over the past five years, as evidenced by the data: 2018: 54.69; 2019: 55.94; 2020: 58.74; 2021: 52.87; 2022: 48.48; . This trend underscores the company's struggles to convert its revenue into profits.
Looking Ahead
Given Fastly Inc's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While the company has a strong reputation in the software industry, its declining profitability and financial strength ranks suggest that it may face challenges in maintaining its historical performance. Investors should keep a close eye on these metrics and consider them when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
