A Multibagger Opportunity?
In the world of tech stocks, few things excite investors more than a multibagger opportunity.
If you’ve been following this column, the term “multibagger” should sound familiar. Over the years, we have covered plenty of multibagger opportunities here at Profit Confidential.
For those not in the know, a multibagger is simply a stock that can provide a return of over 100%. The term was coined by legendary investor Peter Lynch in his 1988 book One Up on Wall Street.
Since technology is one of the fastest-growing sectors in this day and age, tech stocks tend to be the go-to choices for investors who want to earn triple-digit returns.
Looking back, tech stock investors have indeed cashed in big-time from numerous multibagger opportunities. For instance, over the past five years, Alphabet Inc (NASDAQ:GOOG) returned 110%, Amazon.com, Inc. (NASDAQ:AMZN) climbed 424%, while Netflix, Inc. (NASDAQ:NFLX) stock surged 447%.
In fact, most of the household-name tech companies have provided gains topping 100% to their early investors. The problem now, of course, is finding a stock that can deliver this kind of return going forward.
On that front, I want to talk to you about Digital Turbine Inc (NASDAQ:APPS).
Digital Turbine Inc
With a market capitalization of around $270.3 million, Digital Turbine isn’t exactly a well-known tech stock. Headquartered in Austin, Texas, the company helps connect mobile operators, original equipment manufacturers (OEMs), and publishers with app developers and advertisers.
The company offers a comprehensive mobile delivery platform that can accelerate user acquisition and engagement, improve operational efficiency, and bring monetization opportunities.
While its name might not be as famous as the large-cap tech stocks, Digital Turbine has been serving some high-profile clients. For instance, its geo-targeted preloads helped ride-sharing company Lyft Inc acquire more than 1.9 million customers. (Source: “Digital Turbine,” Digital Turbine Inc, last accessed March 28, 2019.)
Today, Digital Turbine’s technology platform is being used by more than 30 mobile operators and OEMs around the world, and has delivered over one billion app preloads for tens of thousands of advertising campaigns.
The company’s mobile operator partners include major carriers like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T), while its OEM partners include industry heavyweights such as Samsung Electronics Co Ltd (OTCMKTS:SSNLF, KRX:005930), Lenovo Group Limited (OTCMKTS:LNVGY, HKG:0992), and Panasonic Corporation (OTCMKTS:PCRFY, TYO:6752).
A Growing Business
Needless to say, the company is capitalizing on a booming industry.
According to its latest earnings report, Digital Turbine generated $30.4 million of revenue in the third quarter of its fiscal 2019, which ended December 31, 2018. This marked a 34% increase year-over-year. (Source: “Digital Turbine Reports Fiscal 2019 Third Quarter Results,” Digital Turbine Inc, February 5, 2019.)
What’s more impressive was the bottom line. Note that, in the year-ago quarter, Digital Turbine had an adjusted net loss of $0.8 million ($0.01 per share). This time around, the company earned an adjusted net income of $3.0 million ($0.04 per share).
Nowadays, it’s not uncommon to see a soaring tech stock that’s still making a loss. By being profitable, Digital Turbine certainly boosted investor confidence.
And the company is just getting started on its growth path.
For full-year fiscal 2019, management expects Digital Turbine to generate $102.5 million to $103.5 million in total revenue. At the midpoint, that would represent a 37.7% increase from the $74.8 million generated in fiscal 2018.
APPS Stock Chart
Chart courtesy of StockCharts.com
As you can see from the APPS stock chart, shares of Digital Turbine Inc have already been on the rise. Year-to-date, the stock is up more than 75%.
However, the company’s business is also growing by leaps and bounds.
Taking its adjusted earnings of $0.04 per share in the most recent reporting quarter, we can extrapolate to an annual run rate of $0.16 per share. With its shares priced at $3.35 apiece at the time of this writing, Digital Turbine stock is basically trading at 21-times its annual run rate earnings.
According to Reuters, the software industry—which Digital Turbine Inc belongs to—has an average price-to-earnings multiple of almost 34.3 times. (Source: “Digital Turbine Inc (APPS.OQ),” Reuters, last accessed March 28, 2019.)
If the company can demonstrate its ability to generate the above annual run rate earnings on a consistent basis, I have no problem seeing it carry an industry average multiple. That would imply a price of $5.48 per share, which is 63.6% higher than where the stock is trading today.
And if the company manages to grow its bottom line—which it likely will—a gain of 100% could be within reach.
For investors looking for multibagger opportunities, Digital Turbine stock should be near the top of their watch lists.