Over the last six months, DoubleVerify’s shares have sunk to $12.45, producing a disappointing 12.9% loss - a stark contrast to the S&P 500’s 16.2% gain. This might have investors contemplating their next move.

Following the drawdown, is this a buying opportunity for DV? Find out in our full research report, it’s free.

Why Does DoubleVerify Spark Debate?

Using advanced analytics to evaluate over 17 billion digital ad transactions daily, DoubleVerify (NYSE: DV) provides AI-powered technology that verifies digital ads are viewable, fraud-free, brand-suitable, and displayed in the intended geographic location.

Two Positive Attributes:

1. Skyrocketing Revenue Shows Strong Momentum

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, DoubleVerify’s sales grew at an impressive 27.9% compounded annual growth rate over the last five years. Its growth surpassed the average software company and shows its offerings resonate with customers.

2. Customer Acquisition Costs Are Recovered in Record Time

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

DoubleVerify is extremely efficient at acquiring new customers, and its CAC payback period checked in at 4.8 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give DoubleVerify more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

One Reason to be Careful:

Operating Margin in Limbo

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

Analyzing the trend in its profitability, DoubleVerify’s operating margin might fluctuated slightly but has generally stayed the same over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 11.9%.

Final Judgment

DoubleVerify’s positive characteristics outweigh the negatives. After the recent drawdown, the stock trades at 2.6× forward price-to-sales (or $12.45 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

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