After spending much of the earlier part of the past year bouncing between a lowly two- and three-star rank, DG FastChannel (Nasdaq: DGIT ) has impressed enough top-performing members of our 170,000-strong Motley Fool CAPS community recently to vault up to five stars before settling at the four-star level. A total of 224 members have given their opinion on the digital advertising firm, with many of them offering analysis explaining the recent optimism.
Shares of DG FastChannel were pounded following a weak sales outlook, but many CAPS members have adopted a contrarian stance and reiterated the long-term potential in the growing advertising delivery space.
To put the situation in perspective: The company delivered big revenue growth in the second quarter, reaching $60.3 million, making its sales forecast of $51 million to $53 million for the seasonally lower third-quarter look that much worse. A rebound in ad spending in last year's third quarter makes for some tough comparisons, too.
But similar to DG FastChannel's strong second-quarter sales, there have been other positive signs for the advertising industry. For instance, Comcast (Nasdaq: CMCSA ) reported an uptick in second-quarter advertising revenue while CBS (NYSE: CBS ) saw strong ad spending in the second quarter as well, a trend that it sees continuing.
DG FastChannel operates in an intensely competitive industry that's rapidly seeing more forms of media blend together. Companies like Akamai (Nasdaq: AKAM ) and Limelight Networks (Nasdaq: LLNW ) are expanding their technologies to deliver video to both traditional channels and new-media outlets, and companies like Google (Nasdaq: GOOG ) and Microsoft (Nasdaq: MSFT ) have acquired their way into a bigger online video presence. But CAPS members like the solid position DG FastChannel has carved out in delivering advertising to traditional TV and radio, and see growth potential in its online Internet media division, Unicast, despite competitive threats.
The company is covering many bases; hooking up with Google TV Ads last year could be a smart move as the Internet giant tries to shake up advertising.
With an earnings multiple in the midteens and analysts estimating 25% annual growth over the next five years, it's not surprising many CAPS members are bullish on DG FastChannel.
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