Fastly, Inc. (NYSE:FSLY) shareholders will doubtless be very grateful to see the share price up 39% in the last quarter. But the last three years have seen a terrible decline. To wit, the share price sky-dived 83% in that time. Arguably, the recent bounce is to be expected after such a bad drop. But the more important question is whether the underlying business can justify a higher price still. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

While the last three years has been tough for Fastly shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

Because Fastly made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over three years, Fastly grew revenue at 17% per year. That's a fairly respectable growth rate. So it seems unlikely the 22% share price drop (each year) is entirely about the revenue. It could be that the losses were much larger than expected. This is exactly why investors need to diversify - even when a loss making company grows revenue, it can fail to deliver for shareholders.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Fastly is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

Fastly shareholders are down 52% for the year, but the market itself is up 37%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Fastly you should know about.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.