The past six months have been a windfall for Fastly’s shareholders. The company’s stock price has jumped 69.3%, hitting $29.91 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is there a buying opportunity in Fastly, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Fastly Not Exciting?

We’re glad investors have benefited from the price increase, but we don’t have much confidence in Fastly. Here are three reasons we avoid FSLY, plus one stock we’d rather own.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Fastly grew its sales at a 16.3% annual rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds.

2. Low Gross Margin Reveals Weak Structural Profitability

For software companies like Fastly, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Fastly’s gross margin is substantially worse than most software businesses, signaling it has relatively high infrastructure costs compared to asset-lite businesses like ServiceNow. As you can see below, it averaged a 61.5% gross margin over the last year. Said differently, Fastly had to pay a chunky $38.53 to its service providers for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Fastly has seen gross margins improve by 7.3 percentage points over the last 2 years, which is elite in the software space.

3. Operating Losses Sound the Alarm

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses — everything from the cost of goods sold to sales and R&D.

Fastly’s expensive cost structure has contributed to an average operating margin of negative 12% over the last year. Unprofitable software companies require extra attention because they spend heaps of money to capture market share. As seen in its historically underwhelming revenue performance, this strategy hasn’t worked so far, and it’s unclear what would happen if Fastly reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.

Final Judgment

Fastly isn’t a terrible business, but it doesn’t pass our quality test. Following the recent rally, the stock trades at 5.7× forward price-to-sales (or $29.91 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re fairly confident there are better stocks to buy right now. We’d suggest looking at the most dominant software business in the world.

Stocks We Like More Than Fastly

ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.

Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE.

Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.