Lacklustre Performance Is Driving Digital Turbine, Inc.'s (NASDAQ:APPS) 35% Price Drop

To the annoyance of some shareholders, Digital Turbine, Inc. (NASDAQ:APPS) shares are down a considerable 35% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 83% loss during that time.

Following the heavy fall in price, Digital Turbine may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.2x and even P/S higher than 11x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

View our latest analysis for Digital Turbine

How Has Digital Turbine Performed Recently?

While the industry has experienced revenue growth lately, Digital Turbine's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Digital Turbine.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Digital Turbine would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 18% decrease to the company's top line. Still, the latest three year period has seen an excellent 74% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 6.1% per annum during the coming three years according to the five analysts following the company. With the industry predicted to deliver 15% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Digital Turbine's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Having almost fallen off a cliff, Digital Turbine's share price has pulled its P/S way down as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Digital Turbine maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Digital Turbine you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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