Please ensure Javascript is enabled for purposes of website accessibility

Why Digital Turbine Stock Was Flying Higher Today

By Jon Quast – Aug 31, 2021 at 10:33AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company is leaving small-cap stocks behind and being added to the mid-cap ranks.

What happened

Shares of Digital Turbine (APPS -7.33%), a company specializing in app installation software, were flying higher today after it was announced it's being added to the S&P MidCap 400 index. As of 9:45 a.m. EDT, the stock was up a cool 11%.

So what

To explain why this news leads to an increase in share price, let's talk about supply and demand. According to Yahoo! Finance, Digital Turbine has a float of almost 87 million shares; that's the supply of shares out there to be bought and sold.

An apparently pleasantly surprised investor places hands on their face while looking at their computer.

Image source: Getty Images.

When a stock is added to an index, like Digital Turbine to the S&P MidCap 400 index, exchange-traded funds (ETFs) begin purchasing shares so they can keep tracking the index's performance. In other words, there's suddenly increased demand for Digital Turbine stock, and that's why it popped today.

Now what

Just because Digital Turbine stock jumped this morning doesn't mean it will hold its gains. Getting added to an index is a short-term influence on the stock. Today's news will fade in significance in time. Consider that every stock in the S&P MidCap 400 was added at some point and likely enjoyed the same initial pop. But some eventually start underperforming the market, like the company Digital Turbine is replacing, Ligand Pharmaceuticals

Positive business results will send Digital Turbine stock higher in the long term. For the upcoming second quarter, the company believes it will surpass $300 million in revenue, an increase of more than 40% from the first quarter and up over 300% year over year. Some of this is from acquisitions, but its core business is also growing at a strong pace. 

Digital Turbine needs to keep building on its recent winning streak if it's going to be a sustainable market beater. Therefore, don't let today's short-term news distract your gaze from what really matters.

Jon Quast owns shares of Digital Turbine. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Digital Turbine Stock Quote
Digital Turbine
APPS
$17.44 (-7.33%) $-1.38
Ligand Pharmaceuticals Stock Quote
Ligand Pharmaceuticals
LGND
$69.70 (-4.07%) $-2.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.