While the pandemic was a human tragedy, it digital turbine (NASDAQ:APPLICATIONS) stock a world of good. The company has been around for a while, without much fanfare. Then, in 2020, things suddenly exploded to extreme levels, especially on Wall Street. After May of that year, APPS stock soared 1,700% non-stop. It’s rarely a good idea, no matter how important a business improvement is.
Source: Shutterstock
In this case, sales skyrocketed, but not at the same rate. Management grew revenue by 126% over 2019, which isn’t even keeping pace with the stock price. Additionally, revenue was already up 34%, 39%, and 86% sequentially stronger before.
What I mean is that things aren’t as good as 1700%, so expectations for APPS stocks have gotten too high. It is therefore not a surprise to see him return a good part of the rally. The bulls made a comeback once again last October. The bottom line is that now APPS stock is 55% off the highs, but that’s still not one for me.
APPS stock has potential
Source: Charts from TradingView
I’m uncomfortable taking a risk while it’s still nearly 400% above the pre-pandemic breakout. Compare that to many stocks with much better financial metrics that eclipse those of Digital Turbine. Take for example companies like Metaplatforms (NASDAQ:Facebook) and netflix (NASDAQ:NFLX).
I always want to commend APPS for its strategic moves, as today’s digital ad market aligns with its mission. Then as Roku (NASDAQ:ROKU), he was a precursor who has a good track ahead of him.
When I say it’s not for me, that’s a risk-reward preference. For the right investor, this might fit like a glove. APPS has a very modest measure of price to sales, so there is no obvious bloat. There are critics of its latest drop in margins, but they are wrong to focus on it now. My problem is more a matter of stock elevation amid current geopolitical risks. I would much rather buy a name like To block (NYSE:SQ), which fell into the actual breakout.
I’m suspicious of the exuberance that is always in stock APPS, not so much of its activity. Enterprise is at the heart of popular trends: the creation, delivery and proliferation of content is a pervasive need of this decade. This is where it all happens and Digital Turbine covers the important categories.
I may start to like Digital Turbine stocks later this year as management continues to improve. But in these uncertain conditions, I prefer stronger companies. In the meantime, I still agree that APPS is a dynamic stock worth trading.
The digital turbine is exciting for commerce
Charts show that there are buyers lurking below. Therefore, it is likely to recover in the short term, as long as the price remains above $36 per share. Losing this level could result in a bit of dizziness at the next support level near $28. Conversely, there will be huge resistance trying to break above $56 per share.
Yesterday started off as a tough day on Wall Street, but APPS managed to turn the tide and close more than 10%. It would be interesting to see how durable this is, as the title attacks the point of failure from February 8th. This chart candle looks like an epic failure and it will take a lot of bullish force to get it back. If and when it does, the bulls could have tougher tests near $63 and $70 per share.
The short term range is wide and this is a fast moving stock. From an investment perspective and just looking at the 12 month chart, it looks close to a bottom. However, I have drawn a weekly calendar to show you a much wider range. Using this approach, the potential downside comes to light and is a little scarier.
I’m not saying to short the stock, but I do raise some caution. Keep in mind that Digital Turbine shares do not trade in a vacuum. If this global showdown between Russia and the world escalates, there could be more pain in the indices. And if that happens, the APPS stock will lose its footing with the rest. He can’t rally alone, no matter how good the story he has to tell.
At the date of publication, Nicolas Chahine had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
Nicolas Chahine is the Managing Director of SellSpreads.com.
