What happened
Digital Turbine (APPS 7.01%) shares rose 12.3% in June, according to data provided by S&P Global Market Intelligence, closing out a volatile month. Following the company's earnings announcement on June 1, the stock swung back and forth dramatically despite no additional news being published. Digital Turbine's beta is high at 2.36, so volatility is par for the course. It also carries aggressive valuation ratios due to its strong growth outlook. That growth is supported by organic expansion as well as acquisitions.
Digital Turbine's chart was the same shape as the Invesco PowerShares Dynamic Software ETF and the Invesco S&P MidCap Momentum ETF. The swings have just been much more exaggerated -- which is no shock based on its history. This should be pretty familiar to growth investors who follow mid-cap stocks.
APPS Total Return Level data by YCharts
So what
Digital Turbine is expanding rapidly in the high-growth digital advertising industry. The company's services connect advertisers with consumers on mobile platforms, making outreach and data collection more efficient. Digital Turbine has also deployed capital in acquisitions to expand its capabilities and promote future growth. Notable recent acquisitions include Mobile Posse, Fyber NV, and AdColony.
Image source: Getty Images.
There's uncertainty inherent in rapid revenue growth and the integration of major acquisitions. That said, it seems Digital Turbine is executing spectacularly in an industry that's bound to continue growing rapidly. Recent financial results also indicate that the company will unlock gains from scale-expenses that aren't rising as quickly as sales, meaning that profits should grow even more quickly than revenue. This is a classic hyped-up growth story with the capacity to deliver. To climb on board, investors have to pay a premium.
Now what
It will be a few more months until Digital Turbine publishes results. Investors should monitor organic growth and contributions from the acquired business during the next earnings report. Until then, expect more volatility.
We've seen that the market is eager to support growth stocks, but there's also concern about the Federal Reserve raising interest rates. When the market thinks Fed tapering is on the way, stocks with high betas and aggressive valuations will get shaken hardest. Digital Turbine investors should be prepared for a bumpy ride upward.
