Fastly is a buy if the stock continues to tank on revenue guidance cut, Cramer says

(CNBC) – Investors should wait for Fastly’s stock to decline a little more before capitalizing on the pullback and buying shares, CNBC’s Jim Cramer said Wednesday.

Shares of the tech firm were getting hammered in after-hours trading Wednesday after it lowered third-quarter revenue guidance, pushing the stock down more than 25% to around $91. Red-hot Fastly was up more than 500% so far in 2020 as of Wednesday’s close.

“The fact is this is a wild trader that was due for big sell-off anyway because … there was too much ignorant money in Fastly,” the “Mad Money” host said. “Now the stock has been significantly de-risked, the ignorant money is fleeing like rats on a sinking ship, and I actually like it more.”

“If it keeps falling and you can get in the seventies, maybe you start a position and get ready for some stabilization,” he added.

Fastly said in its preannouncement that it expects third-quarter sales to be between $70 million to $71 million, down from its prior range of $73.5 million to $75.5 million. The firm said it was hurt by the geopolitical uncertainty facing its largest customer, resulting in that customer to have lower usage of Fastly’s platform.

Although Fastly didn’t name its customer, CEO Joshua Bixby in August said TikTok was its biggest client. In recent months, TikTok’s parent company, Beijing-based ByteDance, has been ensnared in a back-and-forth with the U.S. after President Donald Trump threatened to ban the popular social media app from the country.

Trump in September said he signed off on a deal “in concept” involving Oracle and Walmart that would allow TikTok to continue operating in America.

Cramer said if Fastly’s revenue struggles were indeed largely due to TikTok’s challenges, that is good news for investors because a resolution — while not finalized — appears to be in place.

There still could be more pain ahead for Fastly shares, Cramer cautioned. Typically the reverberations from forecast cuts like this take at least a few days to fully be felt, he said. Plus, the stock had already run up considerably.

“The stock was very expensive even before the negative preannouncement,” Cramer said. “At the close, it was selling for 32 times next year’s sales forecasts, which is probably among the five most expensive stocks I follow.”

However, Cramer said the company’s long-term growth story still appears to be in tact and seems to be continuing its march toward profitability. Based in San Francisco, Fastly’s technology enables digital content to be delivered more quickly to consumers. “Thanks to the pandemic, all sorts of businesses have realized that they need to digitize,” Cramer said.

Given that fact, he said he believes Wednesday’s steep after-hours pullback was a bit of an overreaction from investors, many of whom may be novice traders who thought Fastly’s stock could only go up. “It may have created a good buying opportunity,” he said.

Fastly is set to report its full third-quarter results after the bell Oct. 28.

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