We recently compiled a list of the 10 Hot Penny Stocks On the Move. In this article, we are going to take a look at where Digital Turbine, Inc. (NASDAQ:APPS) stands against the other hot penny stocks.
Interest Rate Cuts and The Stock Market
The economy of the United States has stabilized, the risks of a recession have been delayed, and inflation continues to cool down. On August 30, Reuters reported that the Federal Reserve received a fresh confirmation regarding inflation continuing to ease. The personal consumption expenditure price index rose 2.5% year-over-year in July and inflation has stayed within the 2% goal set by the Fed. Fed Chairman has indicated that the “time has come to cut rates”.
Moreover, in another report by Reuters on the same day there were reports of the US dollar gaining as another key inflation measure fell in line with the forecasts. The Fed is expected to cut rates by 25 basis points this month. Moving forward markets have forecasted 100 bps of cuts by the end of 2024.
The stock market is already riding the tide of expected interest rate cuts. On August 20, CNBC reported that the stock market was climbing yet again, putting the S&P 500 and NASDAQ on track for their eighth positive session in a row, marking their longest winning streak this year.
Nick Colas, DataTrek Research co-founder in a CNBC interview indicated a few more positive points for even more upside for the stock market. He expressed that he feels positive about the market and the slight shuffle that caused some volatility a few weeks ago is now over. He sees the market getting back to July levels.
Colas also pointed out that the small caps and cyclicals lead the market. We have covered Chris Retzler, Needham’s small-cap growth portfolio manager’s bull case for small caps in 10 Best Penny Stocks To Buy According to the Media. Here’s an excerpt from the piece:
“On July 17, Chris Retzler, Needham’s small-cap growth portfolio manager, appeared on CNBC where he expressed optimism for the small-cap companies and suggested that we are in a cycle that will be good for many small-cap companies. The Russell 2000 index jumped 3.5% higher on July 16, hitting the highest levels since January 2022, and was up more than 10% in the previous week. This was one of the biggest rallies investors have seen in the past 4 years.
Retzler believes that small-cap stocks have been waiting for a drop in inflation and interest rate cuts. With inflation easing, interest rates are expected to go down as well. He also sees the market broadening, with small companies that have underperformed benefiting from a drop in inflation.”
Similar to Retzler, Colas is also vouching for small caps to continue outperforming the market. He believes that the market has high expectations from the Fed and the current upside is a result of the news. Moreover, he also mentioned that the stock market tends to react both before and after the cuts have been made and believes that the same pattern of growth will follow if not more after the rate cut.
Our Methodology
To compile the list of 10 hot penny stocks on the move we used the Finviz stock screener. We set the price filter to under $5, current and average stock volume to over 750,000 and the performance filter to positive 30% during the last month. Using these filters we were able to accumulate a list of hot penny stocks on the move. Next we ranked these stocks based on their one month performance, as of August 30 2024. We have also added number of hedge funds that held the stock in Q2 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A row of mobile phones, highlighting the company’s mobile growth platform.
Digital Turbine, Inc. (NASDAQ:APPS)
Share Price as of August 30: $3.22
Current Volume as of August 30: 2.7 million
Number of Hedge Fund Holders: 15
1-Month Performance as of August 30: 45.70%
Digital Turbine, Inc. (NASDAQ:APPS) is a leading mobile growth platform where advertisers, carriers, and OEMs succeed in the mobile market. In simple terms, it helps wireless carriers and device manufacturers manage and monetize devices.
The solutions provided by the company also enable app installation at the time of activation of mobile phones through its partnership with carriers and OEMs.
Though it is a small-cap company, Digital Turbine, Inc. (NASDAQ:APPS) has substantially expanded its offerings by a series of strategic acquisitions. It has acquired companies including AdColony, Mobile Poss, and Appreciate to unlock greater monetization for its services. In addition, it has more than 40 partnerships with major mobile phone manufacturers such as Samsung. Thereby, giving it a strategic edge over the market.
In terms of financial progress, the company returned to quarter-over-quarter revenue growth during the fiscal Q1 2025. It reported a 5% increase in revenue subsequently, reaching $25.2 million. App growth revenue was a major contributor to the overall progress and increased 11% subsequently.
Higher-performance brands of Digital Turbine, Inc. (NASDAQ:APPS) experienced strong demand and its expense discipline contributed to higher profit margins. Its EBITDA margins witnessed a gain of 135 basis points when compared to the previous quarter.
While it is true that the company faces headwinds due to slower mobile phone sales and other macroeconomic pressures, the company has demonstrated its robust fundamentals and profitable business model over its 5-year performance. During the past 5 years, Digital Turbine, Inc. (NASDAQ:APPS) has grown its top line by 35% and levered free cash flow by 78%.
Thereby analysts expect the company to bounce back stronger as soon as the macroeconomic environment gets better. The stock is undervalued as it is trading at only 9 times its forward earnings, which is a 62% discount to its sector. It was held by 15 hedge funds in Q2 2024, with total stakes worth $20.45 million. D E Shaw is the top shareholder of the company, with a position worth $7.79 million.
Greenhaven Road Capital made the following comment about Digital Turbine, Inc. (NASDAQ:APPS) in its second quarter 2023 investor letter:
“It is an understatement to say that the past year-plus has been frustrating for Digital Turbine, Inc. (NASDAQ:APPS) shareholders (us). It has become a smaller position through price declines and sales of shares as uncertainty increased on both the potential for new initiatives as well as their timing.
I often reflect on what went wrong. How did this go from a growth stock to a value stock? There have been two causes, in my opinion. The first is that their product delivering content (not apps) on phones lost T-Mobile as a customer – sometimes we are one day closer to a bad outcome: the loss of a customer. The second, and bigger issue was with their SingleTap product. SingleTap is a technology that “enables smartphone users to instantly install an app to their Android device with a single tap…bypassing the noise of the app store environment, and dramatically increasing conversions.” The higher conversion rates mean lower costs per app install or app opening…” (Click here to read the full text)
Overall APPS ranks 10th on our list of the hottest penny stocks on the move. While we acknowledge the potential of APPS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.