The Fastly Growth Story Takes a Hit

Fastly (NYSE: FSLY), a fast-growing content delivery network provider, may very well be a great company. It's certainly been a great stock this year: Through Oct. 14, shares of the growth darling were up over 500%.

But when you attach a sky-high valuation to a red-hot growth stock like Fastly, any bad news has the potential to cause a major crash. At its 52-week high, Fastly traded at a forward price-to-sales ratio of roughly 50. Not price-to-earnings, because Fastly doesn't have any earnings. Price-to-sales. For comparison, CDN giant Akamai trades for around 6 times sales and 20 times forward earnings.

There's probably some scenario in which paying 50 times sales for a content delivery network stock turns out fine in the long run. I'm not sure I'm capable of imagining such a scenario, but maybe that's just me. Fastly is growing fast for sure: Second-quarter revenue surged 62%. But the higher the valuation, the longer this kind of growth must continue -- and the longer the narrative must remain intact -- for the valuation to make any sense.

Source Fool.com