Do you have a hearty appetite for risk? If so, I invite you to consider on-demand mobile media platform provider Digital Turbine (NASDAQ:APPS). Just make sure that you’ve done your due diligence, as APPS stock could move rapidly in both directions.
It’s easy to understand Digital Turbine’s growth potential. The company’s addressable market is enormous. That’s because the mobile ad spending market is projected to be worth a whopping $540 billion by 2025.
Can a relatively small company like Digital Turbine capture a sizable share of that market? It’s possible, as the company has gotten much bigger and more valuable through its acquisitions of Appreciate, AdColony and Fyber.
Recently revealed financial data only serves to solidify the bull thesis on Digital Turbine. But some folks might be worried about the valuation of APPS stock. So let’s delve into that topic now.
A Closer Look at APPS Stock
Here’s what might cause concern for cautious investors. As it turns out, Digital Turbine’s trailing 12-month price-earnings ratio is a hefty 91.
When a stock’s historical P/E ratio starts to approach triple digits, that can be a red flag for value-focused investors.
I’m in that camp, and I fully understand why Digital Turbine’s valuation is problematic for some people.
So here’s a strategy to consider. From February through April this year, APPS stock was rejected at the $90 resistance level five times.
In early trading today, the stock was changing hands for $52. That’s a significant discount to the peak price, but it still might be too expensive for some investors.
Therefore, it’s perfectly okay to wait until APPS stock hits a lower price point, such as $40, before taking a long position in the name.
If the shares reach that level, then the stock’s P/E ratio should cool off somewhat. Later on, investors will hopefully be able to take profits at the $90 resistance point.
After all, if this strategy works out as planned, you’d be doubling your money and then some. Remember: greed is a portfolio killer!
Off to a Fast Start
Following Digital Turbine’s acquisitions, the company is apparently looking to become a one-stop platform for growth and monetization.
That’s an awfully ambitious vision. Can the company possibly execute on it?
There’s only one way to know for sure: check the data. So we’ll take a peek at how Digital Turbine fared in its fiscal first quarter.
The results were absolutely outstanding. Justifiably, CEO Bill Stone didn’t hesitate to brag about Digital Turbine’s triple-digit-percentage gains in multiple financial metrics.
“We are off to a fast start in fiscal 2022 with more than 100% year-over-year pro forma revenue growth and more than 150% year-over-year growth in both EBITDA and non-GAAP EPS,” Stone stated.
Clearly, Digital Turbine is on the right track, financially speaking. Moreover, there’s lots more ammo for the bulls in the company’s quarterly results.
An Abundance of Positive Data
For example, Digital Turbine reported earnings of 34 cents per share, which exceeded the Zacks Consensus Estimate of 31 cents per share.
Looking for solid revenue growth? We’ve got you covered: Digital Turbine posted $212.62 million of quarterly revenues.
That beat the Zacks Consensus Estimate by 11.87%, while easily outperforming the $59 million of sales that the company recorded in the same quarter a year earlier.
Not satisfied yet? All right, get a load of this: Digital Turbine’s On-Device Media and In-App Media segments showed YOY quarterly revenue growth of 93% and 117%, respectively.
Digital Turbine expects to generate revenues of $300 million to $306 million for the current quarter.
If that pans out, it would represent a big leap compared to the already impressive $212.62 million of revenues which the company reported for Q2.
The Bottom Line
I’ve mapped out a strategy for cautious investors, which involves waiting for APPS stock to pull back.
Then, they can buy it and wait for the stock to hit a resistance level before taking their profits.
Or they can just start accumulating the shares now. There’s more than enough positive financial data to justify a long position in Digital Turbine, even if it feels expensive at the moment.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
View more information: https://investorplace.com/2021/08/valuation-concerns-persist-but-apps-stock-is-still-a-buy/