AcuityAds Stock Has Dropped 46% Over the Last 6 Months: Is it a Buy?

AcuityAds is a stock that will attract growth and value investors given its rapid expansion of revenue and profit margins as well as its reasonable multiples.

Aditya Raghunath

Aditya Raghunath joined the Motley Fool Canada team in 2019 and has close to seven years of experience in covering publicly-listed companies. With a post-graduate degree in finance, Aditya aims to educate and engage Canadians by writing extensively about growth, dividend, and value stocks. If you are considering investing in the stock market, he recommends reading The Intelligent Investor by Benjamin Graham before taking the plunge.

Published September 10, 2021 10:00 am EDT

While the broader markets continue to trade near all-time highs, it’s still possible to find stocks that are trailing indices by a significant margin. One such TSX stock is AcuityAds (TSX:AT)(NASDAQ:ATY), a company valued at a market cap of $588 million.

AcuityAds stock gained went public in July 2014 at a price of $1.55/share. Its shares were rangebound for the next five years, after which the stock gained a monstrous 975% in CY 2020. Currently, shares are down 46% in the last six months, providing investors an opportunity to buy the dip. Despite the recent pullback, AcuityAds has returned over 500% to IPO investors.

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An overview of AcuityAds

AcuityAds provides marketers a solution for omnichannel digital advertising in the programmatic ad space. The global surge in screen time and digital entertainment solutions amid COVID-19 coupled with the growth in Connected TV or ad-based streaming were the key drivers that drove AcuityAds shares to record highs in early 2021. Investors were also optimistic about illumin, which was AcuityAds’s new self-serve platform that launched last October.

In the fourth quarter of 2020, illumin generated $1.5 million in sales, and this figure rose to $5.2 million in Q2 and $8.43 million in the first six months of this year. illumin is a next-gen ad-automation technology offering marketers the ability to plan, buy, optimize and report on ad programs from a single user interface. Now, users can map the consumer journey across devices and communication channels. illumin accounted for 17% of total sales in Q2 and has been a key revenue driver for the company this year.

In the second quarter of 2021, AcuityAds sales stood at $30.2 million, more than 50% higher than its year-ago sales of $19.55 million. In the first six months of 2021, sales rose to $57.73 million, up from $43.77 million in the same period last year.

This rapid growth has also allowed the company to improve its bottom line. In Q2, it reported an operating profit of $2.5 million compared to a loss of $478,000 in the prior-year period. In fact, AcuityAds’s operating income stood at $6.99 million in 2020, and in the first six months of 2021, this figure has surpassed $4.75 million.

A significant portion of the company’s expenses is media costs that consist of ad impressions purchased from real-time ad exchanges or other third parties. In Q2, these costs were $14.47 million, or 48% of revenue.

What’s next for AcuityAds investors?

AcuityAds is forecast to increase its sales by 26.3% year over year to $132.5 million in 2021 and by 23% to $163 million in 2022. Its adjusted earnings per share are estimated to improve from $0.07 in 2020 to $0.28 in 2022.

We can see that Acuity Ads is trading at a forward price-to-2022-sales multiple of 3.6 and a price-to-earnings multiple of 34.5, which are extremely reasonable given its stellar growth forecasts.

Analysts tracking the stock have a 12-month average price target of $19.11, which is 100% higher than its current trading price.