Digital Turbine (APPS) is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.
Over the past month, shares of this mobile software company have returned +39.5%, compared to the Zacks S&P 500 composite's +9.3% change. During this period, the Zacks Internet - Software industry, which Digital Turbine falls in, has gained 13.5%. The key question now is: What could be the stock's future direction?
Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Revisions to Earnings Estimates
Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock's fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
Digital Turbine is expected to post earnings of $0.37 per share for the current quarter, representing a year-over-year change of -15.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -12.5%.
For the current fiscal year, the consensus earnings estimate of $1.60 points to a change of -3.6% from the prior year. Over the last 30 days, this estimate has changed -8.2%.
For the next fiscal year, the consensus earnings estimate of $2.21 indicates a change of +38.4% from what Digital Turbine is expected to report a year ago. Over the past month, the estimate has changed -4.3%.
Having a strong externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock's price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Digital Turbine is rated Zacks Rank #4 (Sell).
The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:
12 Month EPS
Revenue Growth Forecast
Even though a company's earnings growth is arguably the best indicator of its financial health, nothing much happens if it cannot raise its revenues. It's almost impossible for a company to grow its earnings without growing its revenue for long periods. Therefore, knowing a company's potential revenue growth is crucial.
In the case of Digital Turbine, the consensus sales estimate of $176.3 million for the current quarter points to a year-over-year change of -43.2%. The $755.69 million and $927.29 million estimates for the current and next fiscal years indicate changes of -30.2% and +22.7%, respectively.
Last Reported Results and Surprise History
Digital Turbine reported revenues of $188.63 million in the last reported quarter, representing a year-over-year change of -11.3%. EPS of $0.38 for the same period compares with $0.34 a year ago.
Compared to the Zacks Consensus Estimate of $184.68 million, the reported revenues represent a surprise of +2.14%. The EPS surprise was +8.57%.
Over the last four quarters, Digital Turbine surpassed consensus EPS estimates three times. The company topped consensus revenue estimates three times over this period.
Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects.
Comparing the current value of a company's valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.
Digital Turbine is graded C on this front, indicating that it is trading at par with its peers. Click here to see the values of some of the valuation metrics that have driven this grade.
The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Digital Turbine. However, its Zacks Rank #4 does suggest that it may underperform the broader market in the near term.
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Digital Turbine, Inc. (APPS) : Free Stock Analysis Report
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