Small-Cap Digitial Media Solutions Is In Deep-Value Range

Tightly Held Digital Media Solutions Should Be On Your Watchlist 

Digital Media Solutions (NYSE: DMS) is among the smallest of the microcap stocks in our coverage universe but it deserves its place. The company is a digital marketing specialist with a focus on performance marketing based on its dynamic diversification model. The model allows the company to adjust when, where, and how it delivers advertising thus maximizing its own revenue as well as ad impact for its customers.

The stock does not get a lot of coverage from the sell-side community but it is a tightly held issue. The institutions hold a mere 2% of the company but insiders control nearly 88% putting the total sell-side at over 90% and there is some analyst support as well. There are only three current ratings and only one shout-out since the last earnings release but it is bullish. Cannacord Genuity maintained its Buy rating but lowered its price target to $8 from $10. This compares well to the Marketbeat.com consensus of $11.50 which implies about 300% of upside for the stock and the $3.00 the stock is actually trading for. 

Digital Media Solutions Dynamic Marketing Pays Off 

Digital Media Solutions had a mixed Q4 but only in relation to the consensus of three analysts and we don’t put a lot of faith in those figures because most of the analysts hadn’t issued any commentaries or updates in many months. That said, the $119 million revenue is up 16% from last year, 530 basis points better than the consensus figure, and a company record. The gains were driven by strength in both primary business segments with Brand Direct up 17% and Market Solutions up 25%. 

Breaking things down by category, insurance, which is the company’s largest revenue source, increased by 13% while eCommerce revenue grew by 36%. On an industry basis, Auto insurance accounted for 28% of revenue, health insurance 23%, eCommerce 20%, career/education 10%, and consumer finance the remaining 85. 

Moving down to the margin, the company’s gross margin improved by 300 basis points but the gains were offset by non-cash impairments on the bottom line. On the bottom line, the GAAP loss of $0.11 missed the consensus by $0.12 but the adjusted earnings are much better. On an adjusted basis, the $15 million in EBITDA is flat on a YOY basis and the company is guiding for growth in fiscal 2022. 

Turning to the guidance, the company is expecting a sequential downtick in Q1 business due to the end of open enrollment for health insurance. Aside from that, however, Q1 revenue is expected to be up at least 2.5% at the low-end of the range and with improvements in the back half of the year. The full-year guidance is calling for 8.6% revenue growth at the low-end of the range and there is upside risk in the numbers. The company’s retention rate among its largest clients is running at 100% and with the client base growing. 

The Technical Outlook: Digital Media Solutions May Be At Bottom 

Shares of Digital Media Solutions have been trending lower for well over a year but may have hit bottom. The price action appears to be finding support at the current levels with indicators set up for bullish signals. Not only is stochastic already showing a bullish crossover but the MACD is poised to fire on as well, and deep in the lower portion of the range. If this signal confirms with price action we would expect to see a reversal and eventual move back up toward the $10 range. If not this stock will likely remain range-bound at these levels with a chance of setting a new low.