- Fastly shares moved lower during Wednesday's session after Credit Suisse downgraded the stock to Neutral with a $90 price target.
- The analyst believes that margin pressures could hurt near-term results but remains confident in the long-term picture.
- The neutral outlook suggests that the stock could be range bound between $62.20 and $90.50 over the coming sessions until a further catalyst emerges.
Analyst Brad Zelnick cited a balanced risk-to-reward ratio following Fastly stock's recovery from its recent pullback but cautioned that the TikTok traffic loss and the increase in traffic during the first half of 2020 could create tough comps. Unused reserve capacity could put pressure on near-term gross margins during the upcoming quarters.
Despite these concerns, the analyst said that the company still operates a unique developer-centric edge computing platform and that TikTok traffic could return to the platform if the risk of a U.S. ban under the Trump administration diminishes.
From a technical standpoint, the stock moved off of its reaction highs just below the 50-day moving average following a November rally. The relative strength index (RSI) appears neutral with a reading of 52.05, but the moving average convergence divergence (MACD) remains in a bullish upswing – although below the zero line. These indicators suggest that the stock has room to run on the upside, but the intermediate-term trend remains at risk.
In technical analysis, a reaction is a short-term trend reversal in the movement of a security's price. Reactions are most often associated with a downward movement in the price of a security after a period of upward movement, often in response to news or data released.
Traders should watch for consolidation around Fibonacci support levels at around $79.70 over the intermediate term before a potential resumption of Fastly stock's uptrend. A rebound from these support levels could lead to a move toward Fibonacci resistance levels of $90.50, but a breakdown from these levels could lead to a move toward prior lows of $62.20.
The Bottom Line
Fastly shares moved lower during Wednesday's session after Credit Suisse downgraded the stock to Neutral with a $90.00 price target. While margin pressures could hurt the next couple of quarters, the analyst remains optimistic over the long run. The stock could see a period of consolidation between highs of $90.50 and lows of $60.20 as a result.
The author holds no position in the stock(s) mentioned except through passively managed index funds.