4-Star Stocks Poised to Pop: DG FastChannel

Based on the aggregated intelligence of 165,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, online advertising specialist DG FastChannel (Nasdaq: DGIT  ) has earned a respected four-star ranking.

With that in mind, let's take a closer look at DG FastChannel's business and see what CAPS investors are saying about the stock right now.

DG FastChannel facts

Headquarters (Founded)

Irving, Texas (1991)

Market Cap

$466 million

Industry

Communications equipment

Trailing-12-Month Revenue

$220 million

Management

CEO Scott Ginsburg (since 2003)

CFO Omar Choucair (since 1999)

Return on Equity (Average, Past 3 Years)

6.6%

Compound Annual Revenue and Net Income Growth (Over Past 3 Years)

39% and 109.9%

Cash/Debt

$80 million / $0

Competitors

Microsoft (Nasdaq: MSFT  )

Yahoo!

Ascent Media (Nasdaq: ASCMA  )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 94% of the 227 members who have rated DG FastChannel believe the stock will outperform the S&P 500 going forward. These bulls include All-Stars tenmiles and metoo105, both of whom are ranked in the top 0.5% of our community.

Just last week, All-Star tenmiles brought DG FastChannel's plunging price to our community's attention: "I'm a buyer off today's stock drubbing. Balance sheet remains in good shape; significant [free cash flow] even in light of reduced forward outlook. This company is really a long term play on the growth of HD [high-definition] advertising."

In fact, DG FastChannel shed more than a third of its market value last Monday after issuing third-quarter revenue guidance well below analyst expectations. But despite short-term worries over an economic slowdown, high HD penetration rates, and increased pricing pressure from rivals like Microsoft, Yahoo!, and especially Ascent Media, DG FastChannel's fundamentals are still too strong for Fools to ignore. And with the stock now trading at a price-to-cash flow discount to those same rivals, DG FastChannel seems like a relatively attractive bet, as well.

CAPS member metoo105 sums up the story:

The stock has sold off from its high in the forties. Why did it sell off?

1. The company announced that it would miss on the analyst estimates for Q3 and end of year revenues and earnings. Note that revenues are still expected to climb 20% and EBITDA at 40% on the year.

2. The CEO and found sold off about 1/3 of his stake in the company.

3. The company sold around $100 million worth of stock to pay off its long term debt and to build up a cash hoard.

4. This is pure speculation, but I wonder if a lot of future growth was perhaps anticipated from its partnership with Google (Nasdaq: GOOG  ) TV. And Google TV seems to have struck out last month when they made the rounds around the Hollywood studios and content creators seemed to universally dismiss its overtures to try to push out the middle-men (content deliverers) in favor of Google with higher revenues in the form of targeted advertising. ...

But [DG FastChannel] is still sitting pretty. They are still growing insanely fast. They still have none or almost no competition. They still have an old media radio and tv business that will continue to grow into the future. Also as the only game in town they should be able to extract greater profits from their existing market share.

What do you think about DG FastChannel, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Microsoft is a Motley Fool Inside Value pick, and Motley Fool Options has recommended a diagonal call position on it. Google is both an Inside Value and Rule Breakers recommendation, and the Fool owns shares. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool's disclosure policy always gets a perfect score.


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