digital turbine (APPS) recently made it to Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.
Shares of this mobile software company have returned -23.2% over the past month compared to the -3.9% change in the Zacks S&P 500 composite. Industry Zacks Internet – Software, to which Digital Turbine belongs , lost 3.2% over this period. Now the key question is: where could the stock be heading in the near term?
Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.
Revisions to earnings estimates
At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.
Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.
Digital Turbine is expected to post earnings of $0.32 per share for the current quarter, representing a year-over-year change of -27.3%. Over the past 30 days, the Zacks consensus estimate has changed by -17.5%.
For the current year, the consensus earnings estimate of $1.43 indicates a change of -13.9% from the prior year. Over the last 30 days, this estimate has evolved by -12.8%.
For the next fiscal year, the consensus earnings estimate of $1.76 indicates a change of +23.1% from what Digital Turbine is expected to report a year ago. Over the past month, the estimate has changed by -20.4%.
have a strong externally audited balance sheet, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. Due to the magnitude of the recent consensus estimate change, as well as three other factors related to earnings estimatesDigital Turbine is rated Zacks Rank #5 (high selling).
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Expected revenue growth
While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.
For Digital Turbine, the consensus sales estimate for the current quarter of $176.3 million indicates a year-over-year change of -43.2%. For the current and future years, the estimates of $755.69 million and $927.29 million indicate variations of -30.2% and +22.7%, respectively.
Latest reported results and history of surprises
Digital Turbine reported revenue of $188.63 million last quarter, representing a -11.3% year-over-year change. EPS of $0.38 for the same period versus $0.34 a year ago.
Compared to Zacks’ consensus estimate of $184.68 million, reported revenue is a surprise +2.14%. Surprise EPS was +8.57%.
Over the past four quarters, Digital Turbine has exceeded consensus EPS estimates three times. The company has exceeded consensus revenue estimates three times during this period.
No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.
Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values help determine whether its stock is fairly priced, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of the reasonableness of its price.
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.
Digital Turbine is rated D on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information on Zacks.com might help determine whether it’s worth paying attention to the market buzz about Digital Turbine. However, its Zacks No. 5 ranking suggests it may underperform the broader market in the near term.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.