High-growth stocks have taken a beating in recent months, and advertising technology company PubMatic (PUBM +0.73%) has been especially hard hit, down nearly 70% from the highs. In this Motley Fool Live video clip, recorded on Jan. 24, Fool.com contributors Jon Quast and Marc Rapport discuss whether the company could be a smart buy now.
Jon Quast: This one is down roughly 68% from the high. This is another one of those companies that if you look at it, it actually has earnings, trading at 26 times trailing earnings, we're talking about GAAP earnings. You look at the price of sales, we are down around six times sales. This is an incredible bargain stock.
Now, what does PubMatic do? They are exclusively in the digital advertising space. They do a lot of video monetization, and they are the opposite of The Trade Desk. They're not competitors. They are partners. They are competitors with Magnite, which a lot of other Fool investors might know about. But one of the things that I like about PubMatic, besides the industry, the industry is growing like gangbusters. I just closed out the wrong one. Hang with me here while I explain. But PubMatic is in the digital advertising space, and that is taking market share away from traditional advertising mediums.
The industry growth right now for digital advertising is just through the roof, and so you have that strong tailwind coming in for PubMatic. But I don't really know which companies are the best positioned overall. But I will tell you that this is a results-driven business, and this net dollar-based retention rate for PubMatic, 157% in the most recent quarter. Every quarter it's been above 110% and it's been trending upwards quarter over quarter. That tells me that they are delivering for their customers if they are willing to continue to spend more and more quarter-in and quarter-out.
I don't know who the primary winners are in the space. Like I said, this is a very, very crowded space, a lot of new companies coming public. But I can tell you with that net dollar-based retention rate, PubMatic is certainly winning for their customers, and that really looks good to me.
Marc Rapport: Jon, let me ask you something about that since you've looked at them, and I got to thank you both. I'm strictly an income investor, really, at this point, but there is a couple of here that I'm going to look at. PubMatic, I don't have my rankings in front of me, but I'm sure I ranked it near the top. Because for one thing, they're already making money. I thought it was interesting.
They don't have a corporate headquarters, and they're located all around the world. They are establishing a new presence in India. They have eight data centers of their own. I thought that was interesting. I wondered what those are. I'd have to look more into that what they actually mean by their own data centers. Are they co-locating or other people using them? I don't know what that means.
Quast: My understanding is they're theirs. They chose not to go with a third-party hosting because they wanted more control. There's a couple of interviews. The CEO has done some interviews here on Backstage Pass. You can find those in the video hub. Just click "PubMatic" and then click "Interviews." But one of the things that the founder was talking about is he's failed starting a new business before, and so he errs on the side of safety now. He doesn't want to entrust his stuff to a third-party data center. These are first-party, and also the balance sheet. Man, it is zero debt. That isn't by design and tons of cash, and because they err on the side of conservatism when it comes to that, because he's failed as a business owner before, so it is really interesting in that regard as well. The downside really seems limited here for PubMatic.
