There’s a reason Digital Turbine (NASDAQ:APPS) stock remains down big from its all-time high. But once investors realize concerns about this reason are overblown, it should make a big move higher in the coming months.
There are two factors in play.
First, APPS stock has a more-than-reasonable valuation relative to its growth. The second is a factor that’s more macro than company-specific. In recent months, many uncertainties have made investors more cautious about giving fast-growing tech stocks rich valuations because of possible changes to the Federal Reserve’s monetary policies.
If today’s easy money and low interest-rate policies start to reverse course, the present value of their respective future growth goes down. However Fed Chairman Jerome Powell’s speech on Aug. 27 reassured Wall Street that said policies will stay as-is in the coming months. That means the stock market’s upward trajectory since the end of last month could carry on.
Working in tandem, both factors could send APPS stock well above the $63 per share it trades for today. Yes, there are still some factors that could cut the stock market’s move short. There is a degree of risk here. Even so, with the setup looking more opportune here than with other tech growth plays, don’t be afraid to buy.
APPS Stock: Growth at a Reasonable Price
Last year, Digital Turbine looked priced for perfection. Thanks to its pandemic-related tailwinds, shares moved from around $5 to as much as $102.56 per share. But now, after its big slide, it’s looking more like a GARP (growth at a reasonable price) situation.
APPS stock today sells for a forward price-earnings P/E ratio of 37.1x (based on projections for its fiscal year ending March 2022). Based on its results for the following fiscal year, ending March 2023, its at 26x earnings.
Yes, there’s an issue that’s been holding the stock back as of late. As our Louis Navellier detailed on Aug. 18, a publishing change implemented on the Android mobile software platform, operated by Alphabet’s (NASDAQ:GOOGL,NASDAQ: GOOG) Google unit could harm its mobile ad platform’s business model. Yet the company itself, the sell-side community, and Navellier himself all see it as an overblown worry.
Once more market participants start to move to that view as well? APPS stock has room to once again benefit from multiple expansion. Especially as the stock market’s move higher, fueled by Powell’s recent statements, appears ready to continue in the short-term.
How Recent Fed News Could Help The Digital Turbine
The easing of worries about Google’s impact on this company’s growth could give APPS stock a boost. What could sustain it? The Federal Reserve’s recent indication that it will remain dovish and won’t quickly shift to a more hawkish stance. For now, Powell is committed to maintaining the bond repurchase program that’s helped the markets trend higher for over a year. Not only that, he’s in no rush to raise interest rates, either.
With this in mind, the market, tech stocks in particular, could continue to go on their recent strong Fed-fueled run. Admittedly, given the Fed taper is still set to happen, we may not see a repeat of the unsustainable prices tech stocks sported back in the winter, when Digital Turbine shares hit triple-digit prices.
But even if it doesn’t reach its high-water mark, APPS stock could still deliver strong returns from here. It could easily move back up to $80 per share and still sport a reasonable valuation. A move to that price level would mean an increase in its forward earnings multiple from 37x to around 50x.
It’s pricey, albeit still a lot cheaper than the triple-digit P/E ratios sported by similarly fast-growing digital advertising platforms like The Trade Desk (NASDAQ:TTD). A move to $80 per share, while not guaranteed, seems attainable for APPS stock.
The Bottom Line
Granted, the bull case could easily crumble. A lot still hinges on the Federal Reserve’s next moves. If it appears the Delta variant of Covid-19 won’t derail the recovery, the Fed may decide it’s time to reverse monetary policies. In hindsight, the exuberance playing out now in stocks could be hubris before the fall. Also, with some saying the U.S.’s economic recovery has peaked, Digital Turbine’s future growth could come in lower than expected.
Concerns notwithstanding, APPS stock may be one of the best growth stocks you can buy in today’s market.
On the date of publication, Thomas Niel 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.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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