APPS Target Price

Without knowing, I realized I had written over 6 articles on Digital Turbine aka APPS. I could probably write another post on "20 points of APPS". 

But for this post, I want to try something different. I want to try to find out the "Target Price" (TP) for APPS. 

The reason for doing this is that the share price of APPS has been going on a strong uptrend since 31 Aug 21. It is a bit too fast too furious for my liking, for which I am getting uncomfortable with APPS being my 2nd biggest holding in my portfolio.

However, before I start, I like to define what I mean by TP. Ignore what everyone else say. 

IMO, it is a subjective figure, a self-fulfilling prophecy, a figure that makes an investor feel better when we are bag-holding, and it should be as high as possible, till the point where we think this is ridiculous and you will want to sell.  

With that, I will be having 2 approaches towards calculating the TP:

1. Comparison against its peers using the average PS, PE, PC, EV/EBITDA ratios - The peers are IronSource (CEO once mentioned this company as a close rival), Roku (CEO talked about this company in the last 2 transcript) and The Trade Desk (The largest ad-tech other than Google and FB).
2. My personal approach to PS ratio, My PS Growth Valuation Method - I made a over 30 mins Youtube video before, stating that I believe PS ratio and sales growth rate relatively move in the same direction. But one should have assume the ratios by considering the market and the peers.

Furthermore, I will actually calculated the TP per year for the next 2 to 3 years. 

• This differentiate from the normal way of doing TP. Normally when doing a DCF valuation, people used a 5 to 10 years outlook - meaning if the share price move too fast and reach a price that is based on a 5 to 10 years outlook, it definitely meant that we should sell. 
• However, IMO, a 5 to 10 years timeline is too far ahead. Too many things could change. I prefer using a shorter timeline such as 2 to 3 years as we can better predict the revenue figure.
• Do note that the financial year end for APPS is as of March, but results out only in June. Thus, when I stated Mar-22, meaning the end of the financial with results out during Jun-22.

Without further a do, lets move on to the 1st method - Comparison with Peers:

Information taken from Finviz and Morningstar

All Figures are TTM except for EBITDA

With information from Finviz and Morningstar, I calculated the average ratio for each of the category (including APPS), and then, calculated the expected share price per average ratio based on the TTM financial figures. Finally, I took the average of all the expected share price and came up with US$90.880.

This share price is what I deem as the "Current TP". The idea is that "if my peer can have that kind of ratios, why I cannot have as well?".

After that, I went on to calculate FY22 expected share price. For Sales, I used US$900m as the year end Revenue figure. Earning, Cash and EBITDA are based on 1.8 of TTM Figures - indicating an 80% growth in the respective financial figures.

After inputting the TTM ratios, my expected share price is US$161.176.

2nd Method - My PS Growth Valuation Method:

Screenshot of the calculation

The theory has a low Sales growth scenario, a base Sales growth scenario and a high Sales growth scenario.

For Mar-22 figure, it is better to use a high Sales Growth Scenario, since the expected Revenue is stated only to be US$785m, which will be much lower than the expected US$900m to US$1bn figure as stated in the last transcript.

After which, it will be reasonable to fall back on the base Sales Growth scenario - which already deemed the company to be growing at an 80% sales growth rate.

With that I will be expecting the TP to be:

Mar-22: US$157.000

Mar-23: US$150.392

Mar-24: US$259.427

Conclusion

I am glad I did this exercise. I am definitely more comfortable holding on to this company right now. In addition, if it drops ridiculously low, I will still continue to add. 

If you failed to understand what I wrote above, then the summary of TPs are as follows:

Current: US$87 to US$90

Mar-22: US$157 to US$161

Mar-23: US$150 to US$375 (Base Case to High Growth Case)

Mar-24: US$259 to US$800+ (Base Case to High Growth Case)

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Stay tune for my next post!