You Can Make a Play on Internet Solutions With Digital Turbine
We all know that the Internet services segment incorporates some of the biggest opportunities for technology companies. We also know that investing in micro-cap stocks is far riskier than simply buying the market leaders, but look at Digital Turbine Inc (NASDAQ:APPS), a provider of online advertising and mobile payment solutions.
Digital Turbine creates much-sought-after Internet software that helps connect companies to their target markets. The company’s products are used by over 31 million customers worldwide each month. An intriguing secondary business is the company’s “Digital Turbine Pay” service used for transacting mobile payments.
This micro-cap company has a mere $175.0 million in market cap but has easily outperformed the S&P 500 and NASDAQ, up 31% this year and a superlative 168% over the past year.
The long-term chart shows APPS stock in the later stages of a bullish rounding bottom supported by an upward-trending moving average convergence/divergence (MACD) and relative strength, trading at a 52-week high of $2.56 on February 21. The pattern suggests more gains to come and a potential upcoming breakout on the chart for APPS stock.
Chart courtesy of StockCharts.com
Digital Turbine’s stock chart formed a bullish golden cross pattern in May 2017 at just below $1.00, and the share price has been trending steadily higher, above the upward-trending 50-day moving average.
Fundamentals Support a Higher Price for APPS Stock
Digital Turbine has seen its revenues rise in two consecutive fiscal years, in a 207% surge to $86.5 million in fiscal 2016 to $91.6 million in fiscal 2017.
The revenue growth of 5.8% in fiscal 2017 was disappointing, but Digital Turbine is expected to ramp up revenues by 34.4% to $123.0 million in fiscal 2018 and 11.3% to $136.9 million in fiscal 2019. (Source: “Digital Turbine, Inc. (APPS),” Yahoo! Finance, last accessed March 9, 2018.)
In what shouldn’t be a surprise, Digital Turbine, like many emerging companies of its size, hasn’t yet turned a profit but is heading toward a possible $0.03 per diluted share by fiscal 2019.
For APPS stock to attract investors, the company needs to strengthen its earnings picture as well as delivering numbers that Wall Street is expecting. Digital Turbine has beaten the consensus earnings per share (EPS) in only one of the last 15 quarters, while falling short in nine quarters.
In my view, Digital Turbine is situated in the right space and simply needs to deliver on the earnings side.
The chart shows APPS stock targeting $3.00 for a 29% move followed by $4.25, representing a potential 82% advance from current levels. A break at $4.25 could see a retest of the $6.00 level.