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Last week, all three major U.S. indices took a hit, though the tech-heavy Nasdaq Composite fell further than the S&P 500 or the Dow Jones Industrial Average. Unfortunately, this sell-off added to the pain of previous losses for some shareholders, myself included. For instance, Fastly (NYSE:FSLY) stock is now down about 70% from its all-time high.

However, dips in the market can be buying opportunities when we are talking about a good company, especially if the company in question still has strong prospects for future growth. And I think Fastly checks that box. In fact, I think this tech stock could grow threefold in the next five years.

Here’s why.

Image source: Getty Images.

The promise of edge computing

Fastly makes the internet faster. Its edge cloud platform accelerates and secures the delivery of content (e.g. applications, streaming media), ensuring a good experience for end-users like you and me. To do this, Fastly’s global network — composed of servers strategically positioned near internet exchange points — sits between its customers’ data centers and their end users’ devices, effectively reducing the distance data must travel to reach its destination.

Why does this matter? Latency makes for a poor user experience. If a website or mobile app loads too slowly, people tend to abandon the service. This truth is made more pressing by digital transformation. As more companies engage with consumers through the internet, providing a high-quality digital experience becomes more critical.

To that end, Fastly puts its market opportunity at $36.2 billion by 2022.

Competitive position

Fastly built its edge cloud for the modern internet. Its network is composed of fewer, more powerful servers than traditional content delivery networks like Akamai. That means its edge cloud can handle more requests more quickly, so fewer requests are routed back to the client’s data center. In turn, that translates into better performance and cost savings.

Fastly also benefits from its cloud-agnostic position, meaning its platform is not associated with or biased toward any public cloud, like Microsoft Azure or Amazon Web Services (AWS). Fastly works with all of them, intelligently routing traffic across different infrastructures. This means its clients can work with their preferred cloud vendors while monitoring all networks from a single platform.

Financial performance

During the second quarter of 2021, an outage in Fastly’s network caused a significant disruption for many websites, leading the company to post lackluster financial results. Revenue grew just 14%, and management lowered guidance for the third quarter. Even worse, CEO Joshua Bixby noted that a large customer had not yet returned to the platform as of the Q2 earnings call.

According to CDN Planet, this unnamed customer is likely Amazon, since the retail giant stopped using Fastly shortly after the outage. However, Amazon did return to the platform in August, meaning Fastly may impress Wall Street when it announces third-quarter earnings on Oct. 27.

Despite these recent headwinds, Fastly’s financial performance looks a little more impressive over the long term.

Metric

Q2 2019 (TTM)

Q2 2021 (TTM)

CAGR

Customers

1,627

2,581

26%

Revenue

$169.4 million

$323.2 million

38%

Source: Fastly SEC Filings, YCharts. TTM = trailing 12 months. CAGR = compound annual growth rate.

Looking ahead, Fastly has plenty of room to grow its business and management is executing on several opportunities. Last year, the company acquired Signal Sciences, broadening its security portfolio. During the most recent quarter, Fastly launched a beta version of the Signal Sciences agent on its edge cloud, and it introduced its first managed security offering. Collectively, these services help the company further differentiate itself from rivals.

Fastly is also seeing traction with its Compute@Edge product, a new service that enables developers to build applications directly on Fastly’s network. Compared to rival solutions, Compute@Edge offers 100 times faster code execution, which means better performance for end users. And during the most recent quarter, Fastly added new customers across a range of industries, from gaming to e-commerce.

The potential for threefold returns

Fastly still has a lot to prove, and investors should monitor its ability to add new customers. But the world is only becoming more digital, and that should create demand for Fastly’s edge cloud in the coming years.

More to the point, with a market cap of $4.7 billion, Fastly is three times smaller than Akamai. But if the company can maintain its top-line momentum, its share price could easily triple in the next five years. That’s why now looks like a good time to add this growth stock to your portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.